SURVEY OF IRISH LAW FIRMS
2014/15
Contents About us
1
Introduction 2 Executive summary
3
Survey highlights
7
Outlook for the legal sector
9
Managing the firm’s finances
13
Recruitment and retention
17
Mergers and acquisitions
20
Marketing spend
22
IT investment
23
The Legal Services Regulation Bill
26
Ireland’s new Court of Appeal
28
Are pensions still relevant to the legal profession?
30
Dublin professional practices team
32
Accountancy | Financial planning | Forensic | Investment | Tax
About us Smith & Williamson has been managing the financial affairs of private clients and their business interests for over a century. We are one of the top ten largest firms of accountants* in the UK (top 20 in Ireland) and our investment management business has over €19bn equivalent (£15.3bn) of funds under management and advice (as at 30 September 2014).
Our business spans 11 principal offices in the UK, Ireland and Jersey. It has locations in the City of London, Belfast, Bristol, Birmingham, Dublin, Glasgow, Guildford, Jersey, Manchester, Salisbury and Southampton, and an international capability in over 100 countries through membership of Nexia International (a top 10 global network of independent accounting and consulting firms) and M&A International.
Our prime aim is to help our clients achieve their financial ambitions, both corporate and personal. Our clients are varied – private individuals, mid-tolarge businesses, professional practices and non-profit organisations.
In an award-winning business as diverse as ours, professionalism and teamwork are key. We recognise that clients and intermediaries take comfort from knowing they can easily reach senior people and decision-makers in our organisation who are able to understand their needs and objectives.
*According to the latest survey of the market by Accountancy magazine
Smith & Williamson in Ireland Smith & Williamson tax and business services first entered the Irish market in 2008 when it merged with Oliver Freaney & Co, one of Ireland’s leading firms of chartered accountants and business and tax advisers since 1958. Smith & Williamson Investment Management established its presence in the Irish market in April 2011. We provide a suite of investment management, banking and pension services. The combination of Accounting, Tax and Investment Management services enables us to provide a unique offering in the Irish marketplace.
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Based in Dublin, we focus on delivery of business and personal financial services to private clients, entrepreneurs and owner-managed businesses operating domestically and internationally. Our business thrives on its people – a pool of highly talented and enthusiastic individuals who deliver a broad and innovative range of services. Technical excellence underpins how we deliver these services and our teams are dedicated to offering practical financial solutions, without compromising on delivering a genuinely director-led service.
Important information: The value of investments and the income from them can fall as well as rise and investors may not receive back the original amount invested. Past performance is not a guide to future performance.
Introduction We are delighted to present our third annual Smith & Williamson Irish Law Firm Survey. Smith & Williamson also conducts research on law firms in the UK and has done so for the last 20 years. The legal sector continues to be an extremely important sector for Smith & Williamson. Our professional practices team has provided accounting, tax, advisory, and mergers and acquisition services to the sector over many years. The Annual Smith & Williamson Irish Law Firm Survey highlights our continuing commitment to and partnership with the legal sector in Ireland. We wish to especially thank the partners in the legal firms who gave their time to participate in the survey. It is very pleasing to report that this year our team has seen more positivity, confidence and growth in the sector in the last 12 months and it suggests this will continue into 2015.
Survey methodology Our national survey was carried out through telephone interviews in September and October 2014 by Amárach Research. A total of 104 separate law firms took part in the survey, marking an increase on the 101 firms that took part last year. The Survey of Irish Law Firms 2014/15 includes: •
12 of the top 20 Irish law firms
•
18 mid-tier firms
•
74 small firms.
Respondents’ head office locations: Dublin 60 Rest of Leinster
12
Munster 22 Connaught and Ulster
10
Firms were typically represented by their managing partner or a senior partner. The survey seeks to review current attitudes, and enquire about key issues and market sentiment in the legal sector. We would like to thank Amárach Research for its help in conducting the research for this survey. We hope you enjoy our report setting out the analysis and findings of our survey. Paul Wyse, Managing Director Dublin Office
Accountancy | Financial planning | Forensic | Investment | Tax
2
Executive summary Growth and confidence
Paul Wyse
This economic positivity is mirrored by over 84% of law firms (100% of the top 20 firms), who believe the business outlook for the legal sector in Ireland improved in the last 12 months. This is a significant increase on previous years where only 57% in 2013 and 20% in 2012 noted an improvement.
The improving economic conditions and increasing confidence in the economy are reflected strongly in this year’s survey. This is underpinned by key domestic demand indicators and better-than-expected budgetary returns, which suggest economic growth will remain strong in 2014 and 2015. Overall, GNP is expected to remain close to the 5% forecast in the latest ESRI quarterly economic commentary.
Legal sector outlook in past 12 months 2012
2013
2014
Top 20
Improved
20%
57%
84%
100%
Remained stable
37%
31%
13%
0%
Deteriorated
43%
12%
3%
0%
Revenues and profits Unsurprisingly, the improvement in trading conditions has resulted in many firms enjoying increased revenues and profits, with 64% of firms (83% in the top 20) witnessing an increase in revenues.
Revenue growth Increased
30%
53%
64%
83%
Remained the same
39%
18%
26%
17%
Decreased
31%
26%
10%
0%
0%
3%
0%
0%
2012
2013
2014
Top 20
Profits have also increased in 55% (58% Refused/Don’t know of the top 20 firms) of firms, up from (DNRO) 45% in the previous year. Only 10% have seen a decrease in profits. This is a
3
Legal sector outlook in next 12 months 2012
2013
2014
Top 20
Improved
25%
55%
79%
92%
Remained stable
45%
37%
21%
8%
Deteriorated
30%
8%
0%
0%
Furthermore, 79% (92% of the top 20 firms) expect the business outlook to improve in 2015. This is a notable rise on last year’s figure of 55% and on the 25% recorded in 2012. Importantly, no firm anticipates any deterioration over the next 12 months. The positivity about economic growth has translated into an overall improvement in trading sentiment within the sector. A total of 77% (92% of the top 20 firms) of firms experienced an improved outlook over the last 12 months (57% in 2013 and 38% in 2012), while 81% indicated they expect to see an improvement in 2015 (66% in 2013 and 41% in 2012).
significant improvement on the previous year where 30% of firms noted a fall in profits. Interestingly, two-thirds of firms reporting an increase in profits indicated an increase in excess of 10%. It is noteworthy that 37% of firms are reporting an increase in billable hours in this year’s survey. This is nine-times the rate recorded for the last two years.
Accountancy | Financial planning | Forensic | Investment | Tax
Areas of practice growth Property, Construction and Conveyancing are the principal areas of growth in the sector. This reflects an increase in capital availability, pent-up demand for both residential and commercial property coupled with significant overseas funds/investors looking to invest in Irish property. Larger firms also experienced significant growth in the Corporate, Regulatory/Financial, Banking and Employment practice areas over the last 12 months and they expect this to continue in 2015.
Profit growth Increased
45%
55%
58%
Remained the same
22%
33%
17%
Decreased
30%
10%
17%
3%
2%
8%
2013
2014
Top 20
Refused/Don’t know (DNRO)
4
Recruitment and retention
Other key issues
Staff numbers in firms are also increasing, with 83% of top firms recruiting more staff in 2014. Firms expecting to recruit additional staff over the next 12 months have indicated that the average increase in staffing numbers is anticipated to be 10%.
Maintaining profitability remains a key issue for the sector, according to 58% of firms surveyed. Pressure on fees was mentioned by 51% of participants (67% of top 20 firms) as being a major issue for the sector and their firms. Increased competition has resulted in a downward pressure on fees (mentioned by 59% of those surveyed). In an attempt to counter this, 70% of firms have agreed to more fixed fees for assignments in the last 12 months.
Number of staff Increased
37%
41%
83%
Remained the same
51%
47%
17%
Decreased
12%
12%
0%
2013
2014
Top 20
The increase in staffing levels means competition for talent is becoming more of a challenge. Hence, the recruitment and retention of staff remains a key issue for the sector, according to 31% of all firms surveyed (up from 9% in 2013) and 58% of the top 20 firms. Consequently, 27% of firms reported pay increases of 5%+ in 2014, more than double the number of firms in 2013. It is interesting to note, however, that 56% of firms made no pay increases in the last 12 months, which is a consistent level with last years survey. There has been a significant improvement in employment opportunities for trainee solicitors. More than one-in-four firms increased the number of trainees taken on over the past 12 months and one-third of firms expect to hire more trainees in 2015.
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While overall the outlook was positive, the economy and the fragility of the economic recovery still gave 54% of respondents concerns. Managing cash flow and cash flow pressures continue to present issues for 51% of respondents, mainly mid-tier and smaller firms. As turnover increases and working capital needs rise these pressures will exacerbate. There is also a noticeable concern regarding the rise of operating costs. A total of 29% of respondents highlighted this as an issue over the last 12 months. Actions taken by firms To cope, 80% have made changes to their business processes to improve their efficiency and many law firms continue to reduce their operating costs (a total of 61% in the last year). Fixed fees for assignments are now the norm and 70% of firms (83% of the top 20) are reporting an increase in fixed fees for assignments.
Firms continue to increase sales and marketing efforts. Two-thirds of firms surveyed (92% of the top 20 firms) have increased their marketing and sales efforts in the last 12 months. Many have targeted new markets (59% overall and 83% of the top 20 firms) or introduced new services (48% overall and 75% of the top 20 firms) in the last 12 months. This underlines the increasing investment by the top 20 law firms in an attempt to grow revenues and market share compared to the sector in general. Mergers and acquisitions It is generally felt by the profession (twothirds of firms) that the Legal Services Regulation Bill will lead to more mergers. Over the last two years 27% of firms have made an approach to another firm with a view to a potential merger or team acquisition. While almost half of the firms surveyed have been approached with a view to a potential merger or acquisition over the same period. But while there are plenty of merger discussions within the sector few appear to make it to the finish line. We believe that until incorporation is permissible in the legal sector, few if any mergers will occur. This is ultimately because ‘partnership’ is a difficult business model in which to complete mergers/ acquisitions successfully.
While one of the ultimate goals of the Bill is to reduce legal costs, firms believe it will have the opposite affect due to an increase in regulation costs for law firms. In fact, most (78%) believe the Legal Services Regulation Bill will not reduce costs for clients, while 72% believe the Bill will result in increased costs for legal firms. Interestingly, two-thirds of firms are not in favour of the Bill’s one-stop-shop/ multidisciplinary practice proposals. Most are concerned how this will impact on service quality, the pressure it will place on smaller firms and the potential for a lack of access to senior and junior counsel for clients. The new Court of Appeal The recently established Court of Appeal will increase efficiencies in litigation and reduce waiting times for appeals, according to most legal firms. Indeed, four-in-five believe the new Court of Appeal will help Ireland’s international reputation. Furthermore, threein-four believe it will impact the High Court through an exodus of Judges from the High Court to the Appeal Court, resulting in an immediate and significant loss of experience on the High Court bench.
Legal Services Regulation Bill The impact of the Bill is now seen as a key issue for the profession by one-third of firms. This is noticeably higher than previous years, most likely because the implementation of the Bill draws ever closer.
Accountancy | Financial planning | Forensic | Investment | Tax
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1. 2.
Survey highlights There is a more confident outlook for 2015 in the legal sector. Four in every five firms anticipate an improved outlook for their firm and the sector compared to just one-in-two in 2014. The key issues facing the legal sector over the next 12 months continue to be: • • • • •
Maintaining profitability Pressure on fees Managing cash flow (small and mid-tier firms) The economy Recruitment and retention of staff (top 20 firms).
3.
Revenues increased in 64% of firms in the last year (83% of the top 20 firms).
4.
37% of firms are reporting an increase in chargeable hours (67% of the top 20 firms).
5.
Profits increased in 55% of firms in the last year (58% of the top 20 firms).
6.
41% of firms have increased their staff numbers in 2014 (83% of the top 20 firms).
7. 8.
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56% of the firms surveyed made no change to levels of pay, whilst 27% of firms implemented a pay increase of 5%+ (41% of the top 20 firms). 70% of firms have agreed more fixed-fee arrangements for work in 2014.
9. 10.
Two-in-three firms have reduced their operating costs in 2014 (33% of the top 20). Property, construction and conveyancing are the areas where most growth occurred in law practices in 2014 and are expected to be the most significant growth areas in 2015.
11.
Corporate, Regulatory, Financial Services, Banking and Employment Law are other major growth areas in the top 20 firms.
12.
Working capital: 43% of the firms surveyed have debtors and work-inprogress combined lock-up in excess of 150 days (78% of the top 20 firms).
13. 14. 15. 16.
As revenues grow leading to increasing working capital requirements many mid-tier and smaller firms are facing cash flow pressures. A staggering 48% of respondents think social media is not a suitable communication channel for the legal profession (100% of the top 20 firms). Two-in-three law firms surveyed are not in favour of the one-stop multidisciplinary practice proposals in the Legal Services Regulation Bill. 78% of firms surveyed do not think the Legal Services Regulation Bill will reduce costs for clients and 72% think it will result in increased costs for legal firms.
17.
78% of firms surveyed think that the new Court of Appeal will help Ireland‘s international reputation.
18.
43% of firms surveyed are of the view that the new Court of Appeal will speed up litigation.
Accountancy | Financial planning | Forensic | Investment | Tax
8
Outlook for the legal sector “While consumer confidence and investment recovers, legal firms need to be mindful of the shifting sands of opportunity. Team flexibility and preparing the groundwork for new and emerging opportunities is the order of the day.� Recovery The recent ESRI Autumn 2014 report revised its growth projections for GNP upwards to 4.9% for 2014 and 5.2% for 2015. Economic indicators, such as strong budgetary receipts and a pick-up in investment levels, have provided further evidence the economic recovery is gathering pace. Sector outlook in last 12 months 2012
2013
2014
Top 20
Improved
20%
57%
84%
100%
Remained stable
37%
31%
13%
Deteriorated
43%
12%
3%
Marc Lowry
This positivity is evident in the current and future outlook for the legal sector. There has been a significant increase in the number of firms that feel the outlook for the sector has and will improve. An impressive 84% (57% in 2013 and 20% in 2012) of the firms surveyed (92% of the top 20 firms) reported an improved trading environment over the last 12 months and 79% (55% in 2013 and 25% in 2012) (92% of the top 20 firms) see this continuing in 2015.
Sector outlook in next 12 months 2012
2013
2014
Top 20
Improved
25%
55%
79%
92%
0%
Remained stable
45%
37%
21%
8%
0%
Deteriorated
30%
8%
0%
0%
Overall there has been an enormous increase in confidence yearon-year in the legal sector with all indicators highlighting a very positive year: Revenues are up
Recruitment is up Wider and higher pay increases
9
Growth areas and opportunities Firms are reporting growth across a number of areas with property, corporate and litigation work, in particular, standing out. Growth has been identified by the top 20 firms across many other areas, including Employment Law, Regulatory/Financial and Banking. It therefore appears the sentiment is that all boats are rising on this tide.
capital availability coupled with pent-up demand for commercial and residential property with a significant number of overseas funds/investors looking to invest. Larger firms see Mergers and Acquisitions, Regulatory/Financial Services and Banking also as being growth areas in the year ahead.
Firms see ‘Property, Construction and Conveyancing’ as the number one growth area. This makes sense due to increased The main areas of growth for law firms in the last 12 months and anticipated for 2015 were: Overall survey
2013/14
2015
Q3a Grown past 12 months
Litigation & dispute resolution
Q3b Will grow next 12 months
55%
48%
46%
Corporate & commercial
38% 91% 82%
Property, construction & conveyancing Mergers & acquisitions
15%
Regulatory/financial services & banking Privacy & data security
24%
Top 20 firms
16%
16%
8% 44%
Employment/pensions, health & safety Energy & natural resources
20%
20%
12%
3%
2013/14
2015
Top 20 Q3a
Top 20 Q3b
Litigation & dispute resolution
67%
Corporate & commercial
42% 83%
Property, construction & conveyancing Mergers & acquisitions
100%
Accountancy | Financial planning | Forensic | Investment | Tax
58% 83%
75%
50%
Employment/pensions, health & safety Energy & natural resources
67%
58%
Regulatory/financial services & banking Privacy & data security
42%
17% 75%
50%
33% 25%
10
Revenue growth
Profit growth
Increased
30%
53%
64%
83%
Increased
45%
55%
58%
Remained the same Decreased Refused/Don’t know (DNRO)
39%
18%
26%
17%
Remained the same
22%
33%
17%
31%
26%
10%
0%
Decreased
30%
10%
17%
0%
3%
0%
0%
Refused/Don’t know (DNRO)
3%
2%
8%
2012
2013
2014
Top 20
2013
2014
Top 20
Revenues have increased in 64% of firms surveyed in the last 12 months (83% in the top 20 firms). For the first time we are seeing a significant increase in firms (37%) reporting an increase in billable hours. This is nine-times the rate reported for the last two years.
Profits have increased in 55% of firms surveyed (58% of the top 20 firms). Recruitment within the sector also seems buoyant with 83% of top firms increasing their numbers in 2014 and with 41% of firms generally increasing their staffing complements. It is also noteworthy that
Actions taken by law firms to improve performance Firms are continuing to reduce operating costs (61% of firms surveyed) in an effort to combat the era of fixed/reduced fees which impacted on the sector so much during the recession. However, this will become increasingly difficult as it is anticipated these costs will be under pressure to rise as we exit recession and indeed 29% of firms have
11
already reported increasing operational costs in this year’s survey. The vast majority of firms (80%) have sought to improve or change processes in order to become more efficient. Fixed fees for assignments are now the norm and 70% of firms (83% of the top 20) are reporting an increase in fixed fees for assignments to improve performance in 2014.
Key issues facing the legal sector 2012
2013
2014
Top 20
Economy
65%
48%
54%
33%
Recruitment & retention of staff
8%
9%
31%
58%
Maintaining profitability
71%
72%
58%
50%
Partner performance
6%
15%
8%
17%
Managing cash flow
68%
64%
55%
25%
Pressure on fees
69%
65%
51%
67%
Legal Services Regulation Bill
N/A
22%
32%
33%
where firms expect to increase their staffing complement in the next 12 months they anticipate an average increase on existing numbers by 10%. Key issues and challenges The growing confidence in the sector and rapidly growing recruitment needs means increased competition for talent. Consequently some firms are reporting increases in rates of pay, with 27% of firms reporting pay increases of 5%+ in 2014.
Meanwhile, firms continue to increase sales and marketing efforts, as highlighted by 64% of firms surveyed (92% of the top 20). This includes targeting new markets and introducing new service lines over the past 12 months.
This is more than double the number of firms reporting similar increases in 2013. Recruitment and retention of staff was identified as a key issue by 31% of all firms surveyed (up from 9% in 2013) and 58% of the top 20 firms. Maintaining profitability and managing cash flows are still key issues for the sector and particularly mid-tier and small firms. A total of 51% (65% in 2013) of firms also report that there remains pressure on fees (67% of the top 20 firms).
Indeed, profit per equity partner has increased in 42% of respondent firms year-on-year (50% of the top 20 firms).
Firms appear to be managing the recent trading pressures well, with 55% reporting increased profitability in 2014 and 33% reporting stable year-on-year performance.
Accountancy | Financial planning | Forensic | Investment | Tax
12
Managing the firm’s finances An impressive 77% of firms (57% in 2013) have seen an improved outlook for their business in the last 12 months (92% of the top 20 firms). Furthermore, 81% (66% in 2013) are expecting an improved outlook in 2015.
So what do the results of our 2014 survey tell us about the management of legal firms’ finances? Survey participants have indicated a range of financial issues faced by their firms in the past 12 months and those they expect to face in 2015.
The results of previous Smith & Williamson legal sector surveys indicated one of the positive outcomes of the recession years was an increased understanding of and improved focus on the financial management of a practice by partners in legal firms. Previous survey results show a clear set of actions had already been undertaken by firms to address cash flow pressures as a result of the poor trading environment.
The downward pressure on fees had a significant or very significant impact on 59% of firms, closely followed by cash flow pressures (51%). Increased operating costs (29%), availability of finance (25%) and attracting/retaining talented professionals (18%) were the other main issues.
Firm outlook in past 12 months
Firm outlook in next 12 months 2012
2013
2014
Top 20
Improved
41%
66%
81%
83%
8%
Remained Stable
46%
30%
18%
17%
0%
Deteriorated
13%
4%
1%
0%
2012
2013
2014
Top 20
Improved
38%
57%
77%
92%
Remained Stable
43%
29%
21%
Deteriorated
19%
14%
2%
13
Dan Holland
The responses of the top 20 firms indicate a slightly different emphasis. They also appear to be experiencing an issue in attracting/retaining talented professionals, with 75% indicating it had a significant or very significant impact over the past 12 months. However, a greater proportion of the top 20 firms are experiencing issues with increased operating costs (42% said it had a significant or very significant impact).
Issues significantly impacting your firm 50% 61%
31% 24%
0%
0%
59% 58%
15% 17%
29% 42%
Downward pressure on fees
Increased competition
Increasing operating costs
6% 27%
0%
25% 0%
18% 75%
51% 50%
Availability of finance
Attracting/retaining talented professionals
Cash flow pressures
Top 20
0%
2012
31% 47%
2013
2014
Key issues facing your firm 2013
2014
Top 20
Economy
46%
49%
33%
Recruitment & retention of staff
12%
34%
67%
Maintaining profitability
76%
58%
50%
Partner performance
16%
10%
42%
Managing cash flow
66%
56%
17%
Pressure on fees
64%
50%
50%
Legal Services Regulation Bill
15%
27%
25%
While the range of issues facing legal firms in the coming 12 months is unsurprisingly similar to those faced in the past 12 months, there have been some changes since 2013. The key issues identified for 2015 were maintaining profitability (58%), managing cash flow (56%), the economy (49%) and pressure on fees (50%). However, the impact of recruiting/ retaining staff highlights a significant change with 34% of respondents citing this as a key issue compared to only 12% in 2013. This issue is affecting the top 20 even more than the wider legal sector, with 67% of top 20 respondents citing it as a key issue, a significant increase from 25% in 2013. However, the economy seems to be less of an issue for the top 20 with 33% citing it as a key issue. This is a significant reduction on the 69% of the top 20 who signalled it as an important issue in 2013.
Accountancy | Financial planning | Forensic | Investment | Tax
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So what actions have firms taken over the past 12 months to combat the issues being faced and to improve performance into the future? Has the move to fixed fees and changes in business processes to improve efficiency, evident in last year’s survey, continued?
still a significant percentage. A total of 83% of the top 20 firms have agreed to more fixed fees.
Most firms (80% and 75% of the top 20) indicated they have continued to change business processes to improve efficiency, while 61% have continued to take action to reduce their cost base to improve profitability. Interestingly, only 33% of the top 20 firms have reduced their cost base compared to 63% the previous year.
Our survey last year showed a significant increase in business development amongst the legal sector. This year’s survey indicates a continued focus on this trend with 64% (66% last year) of respondents indicating they undertook increased sales and marketing efforts, while 59% (67%) targeted new markets and 48% (57%) introduced new services. The top 20 firms remained more active in driving new business, with 92% increasing sales and marketing efforts, 83% targeting new markets and 75% introducing new services.
The pressure on legal fees remains and 70% agreed to more fixed fees in the past 12 months. Even though this represents a decrease of 11% on last year’s survey, it is
Actions taken by law firms to improve performance 2012
TOP 20
Increased sales/marketing efforts
54% 66% 64% 92%
Discounted/reduced fees/ agreed to more fixed fees
71% 81% 70% 83%
Reduced operating costs
81% 69% 61% 33%
Engaged professional advisors/ third party support
43% 46% 46% 50%
Targeted new markets
51% 67% 59% 83%
Introduced new services
37% 57% 48% 75%
Changed business process(es) to be more efficient
73% 79% 80% 75%
Restructured financial commitments
33% 41% 29% 17%
Outsourced administration/finance
15
2013 2014
14% 10% 11% 8%
Working capital days tied up in debtors and work in progress % of working capital tied up in debtor days Total %
% of working capital days tied up in work in progress
Top 20 %
Total %
8 up to 30 days
31 to 60 days
(20) 30
8
up to 30 days
33
31 to 60 days
(30) 26
(12) 12
(21) 19
Top 20 %
0
0
17 (28) 21
(22) 16 61 to 90 days
61 to 90 days
33
25
91 to 120 days 121+ days Don’t know/ Refused
91 to 120 days
(13) 12
8
121+ days
(20) 26
18
Don’t know/ Refused
(12) 15
(10) 9 (9)
8
(3)
6
() = 2013
33
(Base: Partners in Irish law firms - 104 (Top 20 firms base = 12))
Working capital Working capital management remains a challenge for many law firms, with 55% of respondents indicating managing cash flow was one of the key pressures faced by their firm in the past 12 months. A major issue impacting on cash flow in a legal firm is lock-up, i.e. total of debtors and work in progress (WIP), and how quickly hours worked are turned into cash payments from clients. Whilst most strive to achieve a total lock-up of less than 120 days, it is only with best practice this can be achieved. Even so it can still be difficult given the length of time from commencement to completion of certain legal assignments. Achieving a lock-up profile of less than 120 days remains a challenge with 57% of respondents having a profile of greater than 120 days and 43% being greater than 150 days. The issue is more significant for the top 20 firms with 89% of respondents
Accountancy | Financial planning | Forensic | Investment | Tax
17
indicating a lock-up profile of greater than 120 days and 78% with lock-up greater than 150 days. This disparity between the top 20 and the wider legal sector is likely reflective of the concentration of the longer running type of legal assignments undertaken by the top 20. A key challenge for legal firms is improving partners’ and senior staffs’ understanding of the financial drivers of their firm. In some instances, partners will have had limited exposure to the impact of billing decisions on firm profitability prior to becoming partner. In the context of the survey results an increased focus on training for partners and fee earners to improve awareness and minimise risk regarding lock-up could be beneficial. It could also be worthwhile giving non-fee earners appropriate training in lock-up management to ensure they have the necessary financial management skills if and when they become fee earners.
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Recruitment and retention
Aine Reidy
Number of staff Growth in the last 12 months in the legal sector has had a direct impact on the recruitment needs of firms. This 37% 41% Increased is evidenced by the fact that 41% of Remained the same 51% 47% respondents reported an increase in their overall staff numbers while only 12% Decreased 12% 12% reported a decrease over the same period.
Amongst the top 20 firms the position is clearer still, with no firm reporting a decrease in staff numbers in the last 12 months and 83% reporting an increase. Recruitment and Retention of staff is a key issue for all professional services firms. Sourcing, hiring, training, developing and retaining quality individuals is the key to survival, future growth and the success of all firms. It is clear that there is potentially a shortage of talent as the market improves.
2013
2014
17% 0% Top 20
The numbers As at 31 December 2013 there were 8,923 solicitors holding practising certificates compared to 8,768 in the previous year (this figure is expected to surpass 9,000 as at 31 December 2014). Similarly the number of trainee solicitors commencing training contracts with the Law Society (385) increased this year compared to 2013 (353). However, it is anticipated that there will be a shortage of talent in the coming years due to the improving market conditions and the current low numbers entering the profession. This risk to the profession is mirrored in the results of the survey.
Key issues facing the firm Firms overall
17
83%
Top 20
2013
2014
2013
2014
Recruitment & retention of staff
12%
34%
25%
67%
Partner performance
16%
10%
25%
42%
Key issues facing the legal sector Firms overall 2013 2014
Top 20 2013
2014
Recruitment & retention of staff
9%
31%
19%
58%
Partner performance
15%
8%
25%
17%
Pay increases
Pay increases
There has been a notable increase in the number of firms paying salary increases None/no pay increase of 5%+ in the last 12 months. This has 1% - 3% increased from one-in-eight firms during 3% - 5% 2013 to one-in-four during 2014. In the top 20 firms 41% of those surveyed made pay 5%+ increases in excess of 5% during 2014. It is therefore noteworthy that 56% of firms surveyed, a similar level to 2013, paid no increases to staff last year. This will be an area of increasing pressure in law firms over the next 12 months.
Firms overall 2013 2014
Top 20 2013 2014
56%
56%
19%
17%
8%
5%
19%
0%
15%
8%
56%
17%
12%
27%
6%
41%
Pay decreases
7%
0%
0%
0%
Don’t know/Refused
2%
4%
0%
25%
Employment of qualified solicitors Recruitment agencies are used as the primary method of recruitment by 32% of all firms surveyed and 83% of the top 20 firms. The recruitment and retention of staff is a key issue for all professional services firms. Sourcing, hiring, training, developing and retaining quality individuals is the key to survival, future growth and success.
Accountancy | Financial planning | Forensic | Investment | Tax
Clearly defined career paths and staff development plans are offered by 92% of the top 20 firms. Structured staff appraisals are undertaken by 75% of these firms once a year and 83% have a mentoring system in place for staff. These results indicate the importance of identifying and developing key individuals within firms.
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6
The recruitment and retention of staff is one of three key issues facing 34% of firms compared to just 12% in the previous year. Furthermore, 31% said it was a key issue facing the sector as a whole compared to 9% in 2013 and 8% in 2012. This was also a major concern for the top 20 firms — 67% expected that recruitment and retention of staff was one of the top three key issues for their firm in the coming 12 months. Expectation in growth of trainee solicitors
Number of trainee solicitors Overall
Top 20
Top 20
Increased
14%
27%
25%
75%
Increased
26%
33%
44%
75%
Remained the same
78%
68%
75%
25%
Remained the same
69%
63%
56%
25%
Decreased
7%
5%
0%
0%
Decreased
5%
3%
0%
0%
Refused/Don’t know (DNRO)
1%
0%
0%
0%
Refused/Don’t know (DNRO)
0%
1%
0%
0%
2013
2014
2013
2014
2013
2014
2013
2014
Employment of graduate and trainee solicitors Irish Law firms are increasingly optimistic about recruiting staff, anticipating more staff being taken on in 2015 than in the current year. The number of trainee solicitors being taken on has increased. In the past year 27% of firms increased the number of trainee solicitors taken on by them as compared to 14% in the previous year. The anticipated increase in the human resource requirements of the 20 top firms is evident in the fact that 75% have increased the number of trainee solicitors taken on by them over the previous 12 months. A total of 75% of the top 20 envisage a further increase in their requirement in the next 12 months, as do 33% of all firms. The number of graduates/trainees retained post qualification has remained the same or increased over the past 12 months for 93% of firms. 19
Overall
Partner potential Succession planning is a long-term investment aimed at creating a smooth transition process and reducing the risk of losing or damaging important client relationships. The move to partner level brings with it a significant shift in the individual’s core skillset. New partners see the focus of their work change from technical ability and efficient delivery of projects to business development and managing client relationships, which is not necessarily a natural transition. Bearing in mind the significance of partner appointments, it is therefore important for firms to have formal planning processes to support new partners in getting to grips with their role. Relying on an informal process, or worse, no process at all, is risky particularly where firms do not clearly state their expectations for those moving to partner level.
Mergers and acquisitions Firms need to have a very clear strategy of the types of service they are going to offer in the market and the clients they want to attract. They need to have clarity about where their growth will come from and how they will capitalise on the opportunity. Sometimes this is achieved through merger and acquisition, although this is infrequent in the Irish market place and lateral hires are the norm for strategic moves. There have been very few significant mergers in the Irish legal sector over the last five years. Many new small legal firms were set up, as firms shed staff during the recession. There have been notable newcomers into the market place primarily from the UK, e.g. Beachcroft and Walkers. The growth of the Big Five legal firms has been mainly organic, supplemented by lateral hires and expansion in international markets. Many firms look at merger/acquisition opportunities to expand their service offering, to grow their practice and/or for succession planning purposes. The key factor for any successful merger is that it makes business sense. For many firms, a merger or acquisition, or even making lateral hires, is the logical progression to expand and develop services and new practice areas. This is also a more immediate approach than to have to invest resources and develop the skillsets necessary by a firm on its own to tackle a particular sector, a new market segment or area of law.
Accountancy | Financial planning | Forensic | Investment | Tax
Paul Wyse
Some fundamental obstacles hinder successful consolidation by merger. These include profitability differentials, compensation model differentials, premises issues, rationalisation and integration costs, cultural differences, management structures and capital management issues. Poorly conceived transactions are doomed to fail. Basic principles and commercial issues need to be addressed and confronted as part of any discussions to support and deliver the business case for a successful merger. Difficult decisions are required to be taken and actioned in order to achieve expected outcomes to make the transaction attractive to all participants and stakeholders. The real work and ultimate success of a merger comes post completion. Firms must invest significant effort in post deal integration to deliver the benefits envisaged.
Does 1+1 = 1.5 or 2 or 3? Survey results The positive economic environment and the growth in revenue and profitability experienced by many firms over the last 12 months have most likely dampened merger and acquisition discussions. The expectation and strategic drivers around merger activity have diminished as firms come out of recession and begin to see some organic growth again. Only one-in-two firms expect an increase in merger and acquisition activity in the sector compared to two-inthree in 2013 and three-in-four in 2012.
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The level of discussions initiated by firms with a view to a potential merger or team acquisition in the last two years has remained fairly constant at one-in-four firms. This contrasts with the notable increase in the number of firms who have been approached with a view to a potential merger or team acquisition in the last two years, a number that has increased from 32% to 43%.
Has your firm been approached for potential merger in the last two years Yes
33%
32%
43%
58%
No
62%
66%
57%
42%
5%
2%
0%
0%
2012
2013
2014
Top 20
Refused
Interestingly two-thirds of the firms surveyed think that the Legal Services Regulation Bill will lead to more mergers in the sector. Expectations on levels of merger activity
Increase
72%
63%
51%
50%
Remain the same
19%
34%
36%
42%
Decrease
4%
1%
5%
0%
Refuse/Don’t know (DNRO)
5%
2%
8%
8%
2012
2013
2014
Top 20
Our View Merger is not a strategy in itself. Firms need to understand how they intend to grow their business. Armed with a good strategy for growth a merger can prove to be a very positive turning point. The main objectives of mergers and acquisitions arise from increasing the client base, economies of scale, improving profitability and expanding service lines. The merger and acquisition of partnerships continues to be a difficult route and it is much easier for smaller partnerships to merge or to add small partnerships to a larger organisation. The partnership business model makes it very difficult
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for two mid-tier firms to come together to become a ‘big firm’. This is evidenced by the fact that there is more merger and acquisition activity prevalent in the UK market where the LLP business model is available to the sector. It is our view that should limited liability partnership or incorporation of law firms be permitted this would increase the merger and acquisition activity in the sector. In our survey two years ago most (91%) of the firms surveyed favoured incorporation or LLP as a business model. This would greatly enhance the ability of law firms to merge or complete acquisitions in our marketplace.
Marketing spend Our survey this year highlights the continuing increase in marketing efforts of firms to generate and develop new clients and fees as they prepare for an upturn in the legal market. The days of assignments just falling into the laps of partners are long gone. Everybody is out there chasing work, engaging in business development, networking and building both their personal brand and that of their firm. Marketing is now part of the mantra to increase sales for all professional firms in a very competitive marketplace. Law firms need to ensure their marketing is focused and not just done when they have the money. Most successful firms view marketing and selling not as independent activities but rather an integrated process in which they each have a defined and complementary role. Marketing and business development activities to grow revenues come in many forms, such as increasing activity, increasing services, targeting new sectors, targeting new markets and increasing fee rates. Activity has increased in many firms and 37% of firms are seeing an increase in chargeable hours this year for the first time in many years. “Business development has become a major part of partners’ lives in all professional practices.”
Accountancy | Financial planning | Forensic | Investment | Tax
Seán McNamara Our survey results indicate that 83% of the larger firms surveyed and almost twoin-three of the mid-tier and smaller firms have enjoyed increases in their revenues. The legal sector has recognised the value of and the need for marketing. Investment in those efforts has grown significantly and now forms a key activity of most mid-tier and larger firms. Most successful firms concentrate marketing and sales activities on fewer service offerings rather than more. This is because increased competition drives a greater need for differentiation and a proactive approach to maintaining and growing the client base. Two-in-three firms have increased their marketing spend in the last 12 months. Most of the top 20 have introduced new services and targeted new markets. The average marketing spend by firms surveyed as a percentage of their revenues was 2.4%. This would be at the lower end of the norm suggested by marketing consultants of 2.5% – 3%.
The actions that firms have undertaken in the previous 12 months in order to improve performance included: Targeting new markets
51% 67% 59% 83%
Increased marketing
54% 66% 64% 92%
Introducing new services
37% 57% 48% 75% 2012 2013 2014 Top 20
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IT investment A total of 70% of firms in our survey report IT as a source of competitive advantage but as larger firms power ahead with investment decisions, many mid-tier and smaller legal firms lag behind in their investment mind-sets. Professional services in general and legal firms in particular have historically been slow to adopt new technology. But the world is changing. The majority of firms (70%) in our survey reported IT as a source of competitive advantage. Ongoing IT investment would therefore seem to be a prerequisite of success. Firms need to have clear strategic objectives and an understanding of how IT can support the implementation of these objectives. Investing in infrastructure just because the competition is doing it is not going to deliver from a strategic point of view.
Marc Lowry services with firms offering certain services online. So there is real pressure to be online enabled. Business clients are also looking for increased transparency with online document access and fee tracking becoming the norm internationally. Global clients expect that these demands can be met locally. Of those surveyed, 12% of firms are providing online access for clients while a third of large firms do so. There is a continuing pressure on fees and fixed fees are now the norm for assignments. Firms are therefore looking to understand recovery rates in order to monitor and manage workflow and give management access to the information they need to manage profitability and understand the impact of these.
There are a number of drivers when it comes to implementing new or upgrading existing IT systems. Competition is only one of them. Increasingly there is a consumerism internationally taking hold in professional
Can your clients access their files online?
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Yes No
All firms 12%
Large firms 33%
IT investment
The international trend towards the e-disclosure of documents in cases will Firms report spending on IT to be 4.7% inevitably put pressure on firms in Ireland to of turnover (including IT salaries and have this capability. It is surprising that only consultants). IT system improvement or 28% of firms surveyed have this capability updating as an immediate or medium (58% of the top 20 firms). This is particularly term priority is reported by 66% of firms in so when one considers that 69% of the our survey. This increases to 91% for the firms surveyed that have such capability top 20 firms. Investment decisions equally state it is increasingly being used by them. are more pronounced for the top firms with 92% indicating planned expenditure Firms report that data protection is a in the next 12 months, while only 54% growing concern for 50% of their clients. of all firms surveyed are planning such The equivalent figure for larger firms is expenditure. 75%. It is therefore not surprising that So, while larger firms power ahead with investment decisions, many mid-tier and smaller firms lag behind in their investment mind-sets. This could be explained partially by their perceived view on the returns on IT investments. Our survey finds that large firms generally take the longer-term view looking at a three-year payback timeframe on such investments. However, other firms look to a shorter return on investment timeframe. Mid-size and small firms appear therefore less strategic in their decision making with regard to IT investments. Data protection and e-disclosure? Cyber threats and data security are areas that need to be thought about and managed. However, the pace of change in the wider world means that clients are making increasing demands on IT functionality and infrastructure through, for example, secure file sharing or client specific secure web access. Innovation is needed to ensure risks are managed. At the same time IT infrastructure needs to deliver better client experience and access, reduced and managed costs and competitive differentiation.
Accountancy | Financial planning | Forensic | Investment | Tax
while only 32% of firms in general have a specialised practice area in privacy and data security, 83% of larger firms have such a specialised practice. For firms with data and privacy practices there would seem to be real opportunities. The vast majority of respondents (82%) with a specialised practice in this area indicate this is a growing area for their firm.
Does the firm need to update or improve its current IT systems? IT system priority
All firms Large firms
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Social media and networks In the world of IT, we would like to think everything is controllable but we only see the tip of the iceberg and not what is below the surface. Social media and networks are a reality of life. Firms lock down IT access but employees come to work with their own devices and are engaged.
It can also act as a recruitment tool and provide free client information. However, only a paltry 20% of Irish law firms are using social media for recruitment (36% of the top 20) and just 16% use it to offer free client information (36% of the top 20). Reported social media use by legal firms
A fear of social media Legal professionals and firms are, by their very nature, cautious. When they are confronted with the likes of Facebook and Twitter many simply see a potential minefield of litigation open before them. However, forward-thinking law firms are making social media work for them and are reaping the benefits. While that may be so, our survey found that a staggering 48% of respondents think social media is not a suitable communication channel for the legal profession. Even more alarmingly, this jumps to 100% when the top 20 firms were asked why they don’t engage with social media. Overall 46% of the law firms surveyed don’t use any form of social media (8% of the top 20 firms). However, 36% are currently using social media to develop new clients (45% of the top 20), 36% to develop a professional network (45% of the top 20) and 57% (73% of the top 20) use it as a marketing tool. This would suggest there is a solid section of first adopters within the legal sector who are aware of international studies highlighting that firms who embrace social media win new clients, develop more closely knit relationships with their existing client base and are able to develop a far higher and more effective media profile.
25
None/no special media sites
Research has also found that those seeking to hire a legal firm use social media to help them make purchasing decisions. So before they have even met you they most likely have checked you and your firm out on LinkedIn or other social media sites. It is therefore our view that firms not embracing and using social media are ignoring a potentially key competitive tool to maximise existing business, but to attract new clients. They are also in danger of falling behind to the more forward-thinking firms who are already using social media to gain new clients and boost their existing business relationships.
The Legal Services Regulation Bill The continued delay in enacting the Legal Services Regulation Bill drew further comment from the European Commission in June this year. It urged the Government to move to enact the long-delayed Bill by the end of the year. However, the process was further complicated by the resignation of Alan Shatter TD as Minister for Justice, Equality and Defence and the appointment of Francis Fitzgerald TD to the ministerial role in May. Minister Fitzgerald understandably required some time to digest the content of the Bill, but was able to bring it to report stage in the Dail in early July.
Dan Holland
There remain dissenting views by commentators and the legal sector on the potential impact of the various measures contained in the Bill. The Bill has been stated by one-in-three of the firms to be a key issue for the sector over the next 12 months. When asked what the biggest change to the profession will be if the Bill is implemented as currently drafted 19% of respondents said pressure on fees, 16% said increased regulation, 13% said increased legal firm mergers and 13% said the emergence of more multi-disciplinary practices.
Change within the Irish legal sector as a result of the Legal Services Regulation Bill
Pressure on fees 19%
Greater transparancy 4%
Increase in regulation 16%
Solicitors leaving the industry 3%
Mergers 13%
Quality of service to clients will decline 2%
More multidisciplinary practices/ more specialisation 13%
Improve cash flow and profitability 2%
Increase competition 8%
None 4%
Challenges associated with bringing barristers in house 6%
Other 9%
Smaller firms will lose out 6%
Accountancy | Financial planning | Forensic | Investment | Tax
Refused or do not know 14%
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One of the main points of concern for the legal profession surrounding the Bill is the proposal for one-stop-shop/multidisciplinary practices.
pressure on smaller firms and 16% cited the potential for conflicts of interest and ethical issues.
While the European Commission has urged the Government to enact the Bill in full the Government has deferred the introduction of multidisciplinary practices for a period of six months from the date the Bill comes into effect. When asked in our survey if they were in favour of these multidisciplinary practice proposals, a significant 66% of respondents said “no”. When those who answered “no” were asked what specific issue they had with these proposals, 25% indicated they felt it would result in poor quality service, 20% stated it would put
Reasons not in favour of the one-stop-shop or multidisciplinary practice proposal
One of the key concerns expressed by the European Commission in its economic report on Ireland published in June was that the cost of legal services had failed to adjust downwards since the onset of the financial crisis in part due to insufficient competition. Undoubtedly, one of the main aims of the Bill is to address this issue and to ultimately lead to reduced legal services costs. In that context the answers to our survey question of whether the Bill will reduce costs for clients are revealing with an overwhelming 78% of respondents stating no. In addition, 72% of respondents are of the opinion the Bill will lead to increased costs for legal firms. Interestingly, two-in-three firms surveyed think the Bill will lead to more mergers in the legal sector (one-in-two of the top 20 firms surveyed).
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It will result in poor service quality 25% It will put pressure on smaller businesses/my business 20% Potential conflict of interests/ ethical issues 16% Don’t think it will work/doesn’t work anywhere else 12% It will restrict access to legal services 10% It will restrict competition 7% Other 20% Refused or do not know 3%
It is clear there remains significant concern within the legal sector at the potential impact of the Bill. Views on the Bill’s potential negative impact also differ significantly from the intended benefits of the Bill. Whether the concerns of the legal sector are justified will only become evident once the long awaited Bill is enacted. When survey participants were asked what changes they would like to see to the Bill the most common response was the introduction of limited liability partnerships. Such a move would bring the legal profession in line with other businesses and with the UK.
Ireland’s new Court of Appeal The establishment of the Court of Appeal represents perhaps the biggest change to the structure of the courts system since Independence. This new court sits between the High Court and Supreme Courts and should enable both civil and criminal appeals to be heard in a timely fashion. The Court of Appeal is designed to ease a four-year backlog of cases at the Supreme Court and allow that Court to focus on cases of major importance. The honorable Mr. Justice Sean Ryan has been appointed President of the new Court of Appeal and will become the second most senior member of the Judiciary after the Chief Justice. In addition to the President the court will comprise eight appointments to the Appeal Court from High Court Judges and Judge Alan Mahan of the Circuit Court. Promotions to the new Court of Appeal have left a vacuum with about a quarter of the positions on the High Court vacant. Five Circuit Court Judges, two solicitors and one Senior Counsel are being appointed to fill these vacancies. This movement of senior experienced High Court Judges to the Appeal Court obviously leaves a significant gap in experience on the High Court bench. The views of the legal profession The establishment of the Court of Appeal is seen as highly positive by 78% of firms surveyed who believe it will help Ireland’s international reputation. It should certainly ease the current four-year backlog of cases, which is a source of embarrassment internationally. 71% of those surveyed think
Accountancy | Financial planning | Forensic | Investment | Tax
Paul Wyse
Do you think the new Court of Appeal will help Ireland’s international reputation? Yes
No
Don’t know
2014
Top 20
the new Court of Appeal will have an impact on the High Court. It is felt by 47% of respondents that the new Court of Appeal will speed up the legal process. However, the sentiment among the profession is that there will be an impact on the High Court bench as there are now fewer experienced Judges in the High Court. Do you think think the new Court of Appeal will impact the High Court in any way? Yes
No
Don’t know
2014
Top 20
In broad terms the Court of Appeal will have the jurisdiction, which was vested in the Supreme Court, the Court of Criminal Appeal and Court of Marital Appeal. The latter two Courts have been abolished by the Act. This new institution will therefore act as the default court for all appeals from the High Court. Decisions of this new court will be final except in certain limited circumstances where the case is certified as being one that involves a matter of general public importance or where a Supreme Court hearing is necessary in the interests of justice.
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It was reported that 258 cases from the Supreme Court waiting list were transferred to the new Court of Appeal following a direction by the Chief Justice, Ms Justice Susan Denham. This will result in an immediate reduction of the Supreme Court’s backlog. The new Court of Appeal is anticipated to commence hearing cases in November.
The Chief Justice and the President of the Court of Appeal have the power to issue practice directions in relation to the conduct of appeals before their respective courts.
Legal case management Our survey has some very interesting findings in terms of what, if anything, the Court of Appeal should do to improve the appeals process and duration: •
25% of respondents suggested improved efficiencies and better case management by the Court
•
The speeding up of the appeals process is felt to be important by 21% of respondents.
This may include: •
The use of pre-hearing submissions
•
Imposition of strict time tables
•
Meetings to establish points of agreement and to identify points of difficulty.
The new Court of Appeal will have a significant impact on the practical operation of the Irish Court System, particularly in terms of reducing waiting periods and improving overall efficiency. The historical bottleneck structure that had 36 Judges of the High Court with only one or two panels sitting at Supreme Court level was always going to result in significant delays. This situation was unsustainable and untenable. The Chief Justice’s view is that the Supreme Court, as a Court of last resort, should only hear cases of public significance or cases where an important aspect of the law or the constitution is an issue.
Our View The Court of Appeal is a new important element of justice in Ireland, which will not only enhance our reputation internationally for due and efficient process of litigation, but will improve the practical functioning of the courts for legal professionals and citizens alike. Clarity around processes and case management is essential for all parties.
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The key issue is having practical and practice guidelines that set out clear timelines: • • •
For the process in terms of filing papers For engaging in effective case management To define and refine issues to be determined.
Are pensions still relevant to the legal profession? As a pension professional and Pensioneer Trustee to Smith & Williamson’s Company pension schemes a question I keep asking myself and the team is “are pensions still relevant to Lawyers in 2014?” Pension changes Given the many changes that we have seen in recent years one would be forgiven to conclude that pensions are a small “side order” and not the “main course” as before. This is because the pension’s landscape has seen many changes and adjustments including: 1. Reduction in the maximum allowable Pension Fund (Currently €2m).
Reasons to be cheerful That said there are many reasons that the legal profession should still interest itself in a pension scheme from the points of view of the individual partner and his/her law firm. As far as the partner is concerned there are still the following advantages: •
Income tax relief at one’s marginal (higher) rate. There are not many tax deductions currently available that will match this. Though the amount that can be paid in has been reduced due to the drop in allowable earnings
•
25% is tax free up to a maximum of €200,000. However, up to another €300,000 is also possibly available at one’s standard rate of tax (i.e.20%). That is €60,000 tax charge on a total potential drawdown of €500,000
•
Approved Retirement Fund (ARF) Access. The requirement to buy an annuity has long since been removed. Access to the entire capital after the tax free cash has been taken is available through an ARF. An ARF does have a mandatory drawdown that is taxed but the recent Finance Bill is now proposing to reduce this from 5% to 4%. In addition, in the event of death the ARF transfers in its entirety to one’s next of kin. This ensures
2. Reduction in allowable earnings, currently at €115,000. 3. Introduction of the pensions levy on all pension funds. 4. Cap on the maximum lump sum allowed tax free, currently €200,000. Allied to this is the fact that company directors are more favourably treated when it comes to the amount of allowable contributions, allowable salary levels and the timing of payments into their schemes. So, it is easy to see why pensions might be at the lower end of a partner’s wish list in a law firm.
Accountancy | Financial planning | Forensic | Investment | Tax
Derek Ryan
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•
that the contributions invested over one’s lifetime are a personal family asset that can be transferred to family after one’s death
Investment of the pension scheme
The investments in the pension fund are allowed grow tax free.
•
Conflict Free Advice: The key here is to source advice that is not conflicted in any way. The UK has now disallowed financial advisors receiving commissions and forced the industry to work on a time cost basis. This is welcome and will no doubt see its way into the Irish Market
•
The company that invests the contributions needs to align their interests with the client. Being aware of transactional charges and the Total Expense Ratio (TER) on one’s account, policy or portfolio is important
•
Liquidity: Being locked into a product with no liquidity is not a great idea. Liquidity ensures flexibility in a turbulent world
•
Diversification: Are all asset classes being used? Traditionally, Irish pensions relied heavily on equities. The further away from retirement the person is, the larger the percentage that usually is allocated to this asset. There are more asset classes to choose from.
There are a number of areas that need to be looked at here:
Pensions can also be attractive to law firms and useful as follows: •
•
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Trade as a Corporate: Restrictions are in place on the Legal Profession having limited liability. However, there are opportunities that a portion of the practice could operate as a Corporate Entity. This would allow far larger pension contributions for the Directors of the Company and would be very tax efficient Salaried Partners: An allowable contribution that can be made on behalf of these employees into their pension plans is not restricted to the self-employed rules and as an employer/ employee relationship exists an employer-sponsored pension can be put in place
•
Timing and Service: The timing and scale of the payments can be controlled by the practice
•
Personal Retirement Savings Accounts (PRSAs): Where an employee has less than 15 years in an employer sponsored pension then on wind up it can be moved to a PRSA. This allows flexibility when a salaried partner becomes self employed and can then use the PRSA.
Summary Yes, Pensions are relevant and they have a role to play. Getting unconflicted advice is paramount and being aware of the benefits of pensions is not a waste of time. The recession has shown us that in many ways one’s pension is the “Reserve Pot” and therefore having an awareness and an interest in what happens to it is sensible.
Dublin professional practices team Paul Wyse Tel: 01 6142504 Email: paul.wyse@smith.williamson.ie
Derek Ryan Tel: 01 614264 Email: derek.ryan@smith.williamson.ie
Aine Reidy Tel: 01 6142573 Email: aine.reidy@smith.williamson.ie
Frank Brennan Tel: 01 6142513 Email: frank.brennan@smith.williamson.ie
Dan Holland Tel: 01 6142511 Email: dan.holland@smith.williamson.ie
Michelle O’Donoghue Tel: 01 6142503 Email: michelle.odonoghue@smith.williamson.ie
Gordon Hayden Tel: 01 6142592 Email: gordon.hayden@smith.williamson.ie
SeĂĄn McNamara Tel: 01 6142621 Email: sean.mcnamara@smith.williamson.ie
Marc Lowry Tel: 01 6142546 Email: marc.lowry@smith.williamson.ie
John Fisher Tel: 01 6142508 Email: john.fisher@smith.williamson.ie
Liz Cahill Tel: 01 6142525 Email: liz.cahill@smith.williamson.ie
Smith & Williamson Paramount Court Corrig Road Sandyford Business Park Dublin 18 T: +353-1-614 2500 F: +353-1-614 2501
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Smith & Williamson Investment Services Limited Smith & Williamson Investment Management is a trading name of Smith & Williamson Investment Services Limited. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the UK, and subject to Irish Conduct of Business rules issued by the Central Bank of Ireland.
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Smith & Williamson Paramount Court Corrig Road Sandyford Business Park Dublin 18 T: +353-1-614 2500 F: +353-1-614 2501
www.smith.williamson.ie Smith & Williamson is a member of Nexia International, a worldwide network of independent accounting and consulting firms.