Funding the right path by Sponsor Barclays

Funding the right path by Sponsor Barclays

Funding the right path

 

Manage key risks to make the most of a challenging market, say Andrea Delay and Paul Jarrett from Barclays

 

Law firms are facing a range of financial pressures as they strive to take on both accountancy firms and other alternative providers making impressive inroads into the profession today.

 

“We are seeing steady growth in line with the economy, but law firms are still challenged to be innovative and cost effective with clients demanding that they manage to deliver more for less,” says head of professional services at Barclays, Andrea Delay. “However, there’s also some aggressive momentum behind financial incentives for partners to move on from their current firm. The downward pressure on margins from clients, and upward pressure on cashflow to pay for funding future growth in the form of talent, feed in to quite a mix of cash requirements.”

 

Of course, firms also need to maintain levels of profitability to attract new talent – and all these forces combined demand a cautiously balanced investment strategy – for people, process and premises. “There may be opportunities to use technology to serve clients and add value in new ways, or to move certain activities to lower-cost locations in the UK or overseas,” adds industry director Paul Jarrett (pictured below). “As clients continue to move their own operations on cost grounds, it’s a good opportunity for law firms to review their own arrangements.

 

They could either reduce that space altogether, or replace traditional offices with increasingly popular open-plan alternatives.”

Investing in the apparatus of agile working for example – helping fee earners to work away from the desk, but around the clock – could well pay for itself through a combination of space savings and more flexible client service.

 

Risk and reward

 

The possibilities of lower overheads is something the so-called NewLaw players on the prowl are sure to have picked over already – so if firms find they can’t ultimately compete along an alternative lower-cost path, they may instead need to partner to pass some of these savings onto clients that are being more proactive around cost reduction.

 

“Alternative providers don’t necessarily need to be visible to the client,” says Jarrett. “They’re ideally equipped to manage more commoditised elements of work for traditional firms – and we’re seeing more firms willing to partner up in such arrangements.”

 

Either way, firms must ensure they’re fully talent ready to compete – including with the accountancy firms clearly focused on finding more revenue in legal. “It’s not just about operations behind the scenes,” says Delay. “Firms need partners in all the right places to offer a joined-up global service that matches the client’s own footprint.” She says there has also been an increase in non-executive board appointments to focus more attention on any skills or awareness gaps, including digital capability and its link to risk management.

 

“Although there’s always room for improvement on risk, experiencing the recession has seen most firms get their basic financial hygiene under control,” says Delay. “They’re cutting costs, managing working capital and cooperating with the regulators as they should.”

 

Other risk factors may need more work. “Larger firms working in multiple jurisdictions need to think really carefully about new client acceptance,” says Jarrett. “Clearly, firms try to retain business to meet their profit targets.

However, they also need to bring on brand new clients to grow – and that needs accurate understanding of exactly who they’re bringing on.”

 

But firms are focused on international expansion as a means of spreading their exposure to risks as well. “Overseas markets are one clearly unifying opportunity for firms of all sizes,” he says.

 

Delay says one of the biggest risks facing professional services is fraud – also borderless, and in a mobile-first world, in the form of well disguised cybercrime. “Law firms hold a lot of confidential information, so they tend to be targeted more than other sectors. Cybercriminals are becoming much better organised – posing as senior management, or even the bank, for phishing attacks. They send malware embedded in links to obtain details, and can even make changes to invoices so that payments go astray.

 

“A lot of professional indemnity claims concern fraud on client monies, so of course the firm’s premium will go up as well – another major risk when it’s protecting profitability at all costs.”

 

Jarrett explains Barclays has therefore decided to take a lead in driving more cyber fraud awareness – something that may otherwise be lacking in the sector. “It’s understandable that businesses don’t want to hold themselves up as examples of attempted fraud attacks – but they do need to understand how fraudsters are operating,” he says. “We’ve been running regular seminars outlining examples of best practice in prevention, such as cascading the right types of information down to change behaviour.”

 

In the fierce contest for competitive edge and brand recognition, no firm wants to find a chink in its armour that could prove fatal.

 

Paul Jarrett | Relationship Director | Corporate Banking Origination

MOBILE: 07917 503485 | EMAIL: paul.jarrett@barclays.com

The views expressed in this article are the views of the authors and do not necessarily reflect the view of Barclays Bank PLC, nor should they be taken as statements of policy or intent of Barclays Bank PLC.

 

Paul jarrett

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