2012 may be more challenging than 2009, says legal industry advisory

February 20, 2012 The new client advisory from Citi Private Bank’s Law Firm Group and the Hildebrandt Institute has some disheartening news for the legal sector: “Unfortunately, the economic performance of the industry in 2011… was not able to redress the significant declines experienced in all key financial indicators during the first three years of the economic downturn.”

And there is more struggle on the horizon, with Dan DiPietro, Chairman of Citi’s law firm group, saying in a statement: “Many of our clients agree with us that 2012 may well be more challenging than 2009.”
The report attributes the trouble within the industry to a lack of growth in the demand for legal services, rising expenses, continuing client resistance to fee increases and the increasing cost of maintaining leverage.”

‘Leverage’ in this context refers to the ratio pf partners to fee earners, is a key driver of profits at large law firms which declined after waves of associate layoffs in 2008 and 2009.

In 2001, top tier firms were composed as follows:
*85% associates
*7% income partners
*6% counsel/of counsel
*2% other lawyers

By 2010 the distribution had changed significantly:
*73% associates
*11% income partners
*10% counsel/of counsel
*6% other lawyers

This distribution is a problem for firms because, according to the report, salaried partners are not as lucrative for firms as associates or equity partners.

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