How firms with “fee-splitting” structures have made inroads into the London market
Posted by Jonathan Smyth
The Legal Industry is often maligned for its perceived reluctance to embrace change. Take the career path of a lawyer for instance, once a simple (if sometimes long) process from training to qualification, associate to senior associate, and finally, senior associate to partner, this well-trodden path was widely accepted as the lot of a private practice solicitor. The Legal Industry’s attempts to modernise itself through the use of AI, agile working, and technology, left the traditional career structure largely untouched, with partnership at a traditional law firm still being seen as the ultimate achievement in private practice. Firms with non-traditional structures, such as those that employed “fee-sharing” models, were largely seen as either high-risk unknown quantities or high-pressure environments that relied solely on an “eat what you kill” ethos. Attitudes towards innovation in the legal sector rarely change overnight, and the inception of these modern structures (driven partly by the Legal Services Act of 2007) were somewhat maligned by traditionalists as being unsustainable models for long-term growth. To their credit, the fee-sharing firms have worked hard to change perceptions in the market and, judging by the ever-increasing level of interest expressed by senior individuals in these models, they appear to have succeeded. So what is it about these non-traditional structures that appeal to lawyers? Why would a senior individual with an established client base want to make the move to a firm like this? And what can the firm offer in return? The answer is surprisingly simple; because they offer exactly what they say they do, an alternative to the traditional law firm environment. The traditional law firm structure comes with a myriad of complex issues that can affect an individual’s progression, remuneration, and happiness within their role. Firm-wide strategy, internal politics, sector focuses, and attitudes to charge-out rates can all affect an individual’s business case for partnership and position within a practice. Those who find themselves frustrated by these issues and want more autonomy over their practice and how they approach their clients may be better served within a fee-sharing environment. Remuneration is also a factor for some individuals when considering their position in a traditional firm versus a fee-sharing environment. Take the example of Lawyer A being paid £80,000 at a traditional practice whilst generating £250,000 of work per year and transport their practice into a fee-sharing environment where 50% of fees are passed to them as remuneration. Lawyer A now earns £125,000, a £45,000 increase in remuneration in very short order. It should also be pointed out that 50% is a conservative figure and several firms with fee-sharing models offer significantly higher percentages to their lawyers. There is a perception in the market that firms with fee-sharing models are siloed and not collaborative in their approach, however cross-referrals of work between lawyers at these firms is very common, particularly as a significant number of the remuneration models will also include bonuses for work brought in and passed to other individuals within the practice, making it mutually beneficial for referrals to be made. Fee-sharing firms have also made significant investments in marketing and secretarial functions, as well as beginning to take on salaried associates in some cases, in order to combat the perception that the support offered to lawyers who work there is minimal. It is, of course, worth mentioning that, whilst fee-sharing models are clearly making headway in the London market, they are not necessarily for everyone. Lawyers must be confident in their ability to transport their clients and work to a new firm, as remuneration paid in line with billings is only of benefit if one is actually billing. For that reason, these models are unlikely to appeal to the more conservative individuals in the market. It is also worth mentioning that, whilst fee-sharing firms have made significant strides in the level of support that they provide to their lawyers, these may not always resemble the traditional models that some individuals may be used to. An adjustment period is to be expected, but those favouring significant associate and administrative support may be less enthusiastic about the prospect of joining a fee-sharing practice. Whilst it is not our intent to extol the virtues of the fee-sharing model over the traditional law firm or vice-versa, for those considering the future of their career and wondering whether the traditional private practice model is the right platform for their client base, it is comforting to know that other models exist and that they have made rapid progress in becoming genuine alternatives to the traditional model.