CommBank Legal Market Pulse. Conducted by Beaton Research + Consulting Quarter 3 FY15

Size: px

Start display at page:

Download "CommBank Legal Market Pulse. Conducted by Beaton Research + Consulting Quarter 3 FY15"

Abner Stevens
6 years ago
Views:

1 CommBank Legal Market Pulse Conducted by Beaton Research + Consulting Quarter 3 FY15

2 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Contents Foreword 2 Economic outlook 3 Snapshot of report findings 4 Firm Structure Office locations 7 Primary practice areas 7 Business conditions Perceived performance of the Australian economy 8 Perception of business conditions - present to Perception of business conditions - by area 9 FY15 financial performance Total revenue change FY14 to FY15 1 FY15 budgeted and actual revenue results 1 FY15 budgeted and actual expenses results 11 Managing people, staff and talent Core staff turnover between 1 July & 31 December Expected change in core staff turnover in FY15 19 Expected change in core staff remuneration in FY15 2 Contract staff headcount 2 Change in casual/contract staff headcount 21 Sourcing and outsourcing Use of LPOs - next 12 months 22 Client driven LPO usage 22 LPO impact on operating margin - next 12 months 23 Outsourcing back office functions - last 12 months 23 Outsource office functions to lower cost locations - last 12 months 24 Revenue predictions Change in revenue over the next 6 months - by location 12 Change in revenue over the next 6 months - by practice area 13 Realised rates and fee structure Expected changes in realised rates - next 6 and 12 months 15 Expense and profitability predictions Change in expenses over the next 6 months 16 Change in staffing over the next 6 months 17 Change in operating margins over the next 6 months 18 1

COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Confidence set to rise over long-term, driven by optimism among top-tier firms Asked which practice areas were likely to outperform, firms nominated

3 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Confidence set to rise over long-term, driven by optimism among top-tier firms Asked which practice areas were likely to outperform, firms nominated employment, insurance and property law as the most likely sources of increased revenues. However, government work looks set to decline as reduced state and federal spending take their toll, while revenue across construction, IT, telecommunications and media are also forecast to fall. Marc Totaro National Manager, Professional Services Commonwealth Bank Welcome to the third quarter edition of the CommBank Legal Market Pulse for the 215 financial year. It s good to see confidence is rising among Australia s top-tier law firms, with the vast majority expecting business conditions to improve over the next two years. Our latest report shows long-term optimism returning to the industry, fuelled by expectations of revenue growth, low interest rates and an improved economy. Every top-tier firm surveyed forecast higher revenues over the next six months in Europe, Asia and Sydney, with most also anticipating growth in Brisbane and Canberra. But while sentiment has improved markedly among the top-tier, mid-tier firms are less positive. With comparatively little exposure to global economic growth and large transactions, these firms are less optimistic about revenue growth and are generally more subdued about conditions over the next 12 months, although most still expect an improvement by 217. Investments in marketing and business development are expected to rise, as firms aggressively pursue revenue growth. Yet many are also looking to rein in non-essential expenses before the end of financial year, with spending on IT and staff training set to tighten. The intensely competitive market is also reflected in the lateral hiring of and lawyers, which has continued apace over the last quarter. Firms continue to poach lawyers and from their rivals, while a growing number of junior staff has switched employers in search of greener pastures. Both top and mid-tier firms are planning to decrease secretarial and shared service staff, with almost a quarter of all firms having outsourced office functions to lower cost locations. A key driver behind this trend is that half of all firms believe there is growing pressure from clients to use legal process outsourcing. I hope you find this issue useful and informative. We look forward to continuing to monitor the legal industry s sentiment and performance, and sharing these insights with you. marc.totaro@cba.com.au Tel:

COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Australian economic outlook New sources of income are needed as the economy transitions from mining to non-mining led growth.

4 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Australian economic outlook New sources of income are needed as the economy transitions from mining to non-mining led growth. Parts of this growth transition are on track. Resource exports are surging and will be a significant new source of income growth over the next two years. The residential construction upturn is also firmly entrenched. The labour-intensive nature of this sector will be positive for jobs growth. Mining related job losses are currently being more than offset with jobs related to rising dwelling investment. Diana Mousina Associate Director Economics Commonwealth Bank The latest growth figures have confirmed the Australian economy has expanded by a belowtrend 2.7 percent over 214. The story is really a tale of two halves, with annualised growth in the first half of 214 tracking at 3.4 percent while growth in the second half was 1.7 percent. Below-trend growth is evidenced through soft readings across the business surveys. The latest CommBank Legal Market Pulse indicates a negative shortterm outlook of business conditions across the legal industry. Perceptions of business conditions have increased marginally from last quarter but still remain weak. The long-term outlook continues to remain positive. And top-tier firms are continuously more optimistic about future business conditions compared to mid-tier firms. Income growth in the economy is running at exceptionally weak levels. The significant decline in commodity prices over 214 is the main reason behind this weakness. A lack of income has pushed consumers to defer spending and increase savings, businesses to defer or cancel capital spending and labour hiring and governments to tighten the fiscal screws. This income weakness is reflected in consumer and business surveys. Legal leaders surveyed in the CommBank Legal Market Pulse have mixed forecasts for staff numbers. Expectations for total staff numbers are relatively unchanged from last quarter however across the headline number there are variations across the different groups. Partner numbers are expected to decline, along with paralegals, secretarial and administrative staff. Graduate numbers are still expected to grow. One part of the growth transition faltering is nonmining business capex. Recent data shows commercial lending growth, one of the funding sources for non-mining capex, has dropped after solid growth over 214. This part of the transition needs to be stronger over 215 for reasonable growth outcomes to be met. Business confidence and conditions will need to improve to drive nonmining capex higher. The RBA downgraded their growth and inflation forecasts in early 215 and were a key reason for their decision to cut the cash rate to 2.25 percent in February. The RBA s rate cut is at odds with the central bank s rhetoric regarding strong dwelling price growth in parts of Australia (particularly Sydney and Melbourne). The RBA expects macroprudential tools announced by the Australian Prudential Regulator in late 214 will cool dwelling price growth this year. The RBA s desire to influence consumption and investment patterns means that one standalone rate cut is unlikely. In an environment of low inflation, a rising unemployment rate and an uncertain growth transition, we and the market see another rate cut in the second quarter of this year, most probably in May. 3

5 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Snapshot Summary of survey Q1 FY215 findings findings Perception of business conditions Perceived performance of the Australian economy over next 12 months All firms Top-tier firms Mid-tier firms At the moment In 12 months In 24 months Net (positive-negative) Net (positive-negative) Budgeted vs actual results Mean Revenue -1.3 Expenses -3.2 Revenue 1.6 Expenses -4.7 Revenue -1.9 Expenses -2.9 Total firms Top-tier firms Mid-tier firms Revenue expectations by state Highest revenue growth expectations by practice area Top-tier firms Employment, workplace and OH&S IT, telecoms and media Taxation 5 Mid-tier firms Insurance Construction, engineering and major infrastructure Employment, workplace and OH&S Net (positive-negative) 4

6 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Snapshot of survey findings Expected changes in realised rates Operating margins Top-tier firms Mid-tier firms Top-tier firms Mid-tier firms Next 6 months Next 12 months Next 6 months Next 12 months Net increase Changes in staff numbers Top-tier firms Junior lawyers Fixed share / salary Equity Senior lawyers Secretarial / admin staff Shared service staff Paralegals Junior lawyers Fixed share / salary Senior lawyers Paralegals Equity Mid-tier firms Secretarial / admin staff Shared service staff Turnover of core workforce Secretarial / admin staff Junior lawyers Shared service staff Senior lawyers Paralegals 3.9 Fixed share / salary 2.8 Equity Mean Expected change in staff turnover 5 Senior lawyers 28 Mean Fixed share / salary 21 Paralegals 14 Secretarial / admin staff 1 Junior lawyers 7 Equity 3 Shared service staff -7

7 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Snapshot of survey findings Expected change in staff remuneration Fixed share / salary 3.5 Mean Senior lawyers 3.1 Equity 2.8 Junior lawyers 2.7 Shared service staff Secretarial / admin staff Paralegals Contract staff headcount Expected change in contract staff headcount Paralegals 18 Junior lawyers 35 Shared service staff 7 Shared service staff 21 Secretarial / admin staff 6 Paralegals 18 Junior lawyers 2 Secretarial / admin staff 18 Senior lawyers 2 Senior lawyers 18 Fixed share / salary 1 Fixed share / salary 7 Mean Net (increase-decrease) Use of LPOs Outsourcing Firms Client driven 11 Decrease 7 Decrease 46 Remain the same 41 Remain the same 43 Increase 52 Increase 17 Outsourced back office functions 24 Outsourced office functions to lower cost locations 6

8 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Firm structure Office locations Sydney Melbourne Brisbane Perth Asia Other Adelaide UK / Europe Canberra Primary practice areas Litigation and dispute resolution Property, environment and planning M&A and corporate advisory (including capital markets) Employment, workplace and OH&S Insolvency and restructuring Banking and finance (including funds management) Intellectual property (including PTA and IP disputes) Competition, consumer law and trade practices Construction, engineering and major infrastructure (including project finance) Energy and resources IT, telecoms and media Government Taxation Insurance Other general commercial work

9 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Business conditions Perceived performance of the Australian economy The majority of firms believe the Australian economy will either remain stable or decline in the next 12 months. This is consistent across top and mid-tier firms Negative Neutral Positive Net (positive negative) Perception of business conditions present to 217 Top-tier firms are more optimistic about current and future business conditions for Australian law firms than mid-tier firms At the moment Likely to be in 12 months' time Likely to be in 2 years' time Total Top-tier Mid-tier 8

10 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Perception of business conditions - by area Mid-tier firms are finding it harder to collect invoices, find quality staff and keep expenses under control compared to the top-tier law firms Accessing capital Keeping quality staff Finding quality staff Keeping expenses under Collecting invoices control Keeping staff fully utilised Winning new business Competing with other firms Negotiating price with clients 9

11 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 FY15 financial performance Total revenue change FY14 to FY15 Of all firms surveyed, 1 in 2 firms have missed their revenue budgets. Mid-tier firms were more likely to miss their budgets than top-tier firms Average -1-8 On budget Under budget by -5 Under budget by 6-1 Under budget by Over budget by -5 Over budget by 6-1 Over budget by Mean -2 FY15 budgeted and actual revenue results Overall, current revenue is slightly higher compared to last year. This is consistent across top-tier and mid-tier firms Average -1 The same as last year Current revenue under by -5 Current revenue over by -5 Current revenue under by Current revenue over by Current revenue over by more than 16 Current revenue over by 6-1 Current revenue under by 6-1 Mean -2 1

12 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 FY15 budgeted and actual expenses results At this time of the financial year, 2 in 3 firms have managed to control their expenses and are tracking below budget Average -1-2 On budget Under budget by -5 Under budget by 6-1 Under budget by Over budget by -5 Mean 11

13 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Revenue predictions Change in revenue over next 6 months - by location Top-tier firms have forecast revenue increase in UK/Europe, Asia and Sydney, with a net decrease in revenue in Adelaide and Perth Brisbane Sydney Canberra Melbourne Adelaide Perth UK / Europe Asia 12

14 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Change in revenue over the next 6 months - by practice area Top-tier firms are forecasting greatest net growth across the Employment, Workplace, OH&S, IT, Telecoms and Media Practice areas, whereas mid-tier firms forecast highest net increase across the Insurance, Construction, Engineering and major infrastructure areas Government Construction, engineering and major infrastructure IT, telecoms and media M&A and corporate advisory Intellectual property Total Top-tier Mid-tier Litigation and dispute resolution Employment, workplace and OH&S Banking and finance Taxation Property, environment and planning Total Top-tier Mid-tier 13

15 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Change in revenue over the next 6 months - by practice area (continued) Competition, consumer law and trade practices Insurance Insolvency and restructuring Energy and resources Other general commercial work 14

16 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Realised rates and fee structure Expected changes in realised rates next 6 and 12 months Mid-tier firms expect realised rates to increase, whereas top-tier firms are forecasting a decrease. 2 Mean Next 6 months (compared to last 6 months) Next 12 months (compared to last 6 months)

17 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Expense and profitability predictions Change in expenses over the next 6 months Top-tier firms forecast a net decrease in Marketing, Business Development, and IT Hardware and Software, and a net increase in Occupancy and Professional Indemnity Insurance. The converse is true for mid-tier firms IT hardware and software Staff training and development Marketing and business development Occupancy Professional indemnity insurance Telecommunications Library and knowledge management 16

18 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Change in staffing over the next 6 months There is a forecasted decline in net proportion of partner numbers which is being driven by top-tier firms Equity partner numbers Fixed share / salary partner Senior associates / senior lawyers Junior lawyer numbers numbers (4th year+) (Graduates 3rd year) Shared service staff numbers Secretarial / admin staff numbers Paralegals 17

19 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Change in operating margins over the next 6 months Top-tier firm leaders forecast a greater increase in operating margins, compared to their peers in mid-tier firms

20 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Managing people, staff and talent Core staff turnover between 1 July & 31 December 214 Top-tier firms are experiencing the highest turnover in staff, predominantly with junior lawyers. Mean Total core workforce Equity Fixed share / salary Senior associates / senior lawyers Junior lawyers Paralegals Shared service staff Secretarial / admin staff Expected change in core staff turnover in FY15 There is a high net forecast turnover among salary, senior lawyers and paralegals, driven by top-tier firms Total core workforce Equity Fixed share / salary Senior associates / senior lawyers Junior lawyers Paralegals Shared service staff Secretarial / admin staff 19

21 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Expected change in core staff remuneration in FY15 Top-tier law firm leaders are forecasting a significant increase in remuneration among equity, senior lawyers and junior lawyers. By contrast, forecasted remuneration for paralegals is expected to remain fairly stable for the remainder of the financial year. 6. Mean Total core workforce Equity Fixed share / salary Senior associates / senior lawyers Junior lawyers Paralegals Shared service staff Secretarial / admin staff Contract staff headcount Paralegals are most likely to work in contract roles with over 1 in 3 paralegals in top-tier firms currently working as a contractor Mean Fixed share / salary Senior associates / senior lawyers Junior lawyers Paralegals Shared service staff Secretarial / admin staff 2

22 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Change in casual/contract staff headcount The net increase in contract roles for junior lawyers is driven by top-tier firms. These firms are also looking to increase the number of contracted paralegals they engage Fixed share / salary Senior associates / senior lawyers Junior lawyers Paralegals Shared service staff Secretarial / admin staff 21

23 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Sourcing and outsourcing Use of LPOs - next 12 months The majority of firms believe use of LPOs among firms and clients will either increase or remain the same over the next 12 months Firm use Client use Total Top-tier Mid-tier Total Top-tier Mid-tier Remain the same Decrease Decrease significantly Increase Client driven LPO usage Of the firms surveyed, 1 in 2 top-tier firms believe there is growing pressure from their clients to use LPOs. This sentiment is less prevalent among mid-tier firms Neutral Disagree Agree Net (agree-disagree) 22

24 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 LPO impact on operating margin - next 12 months The majority of firms do not believe growth in LPOs will affect their operating margins over the next 12 months None Decrease by 1-4 Increase by 1-4 Outsource back office functions last 12 months The proportion of top-tier firms who have outsourced back office functions have increased. The proportion among mid-tier firms has decreased yes Q4 FY14 23

25 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Outsource office functions to lower cost location - last 12 months The proportion of firms who have moved office functions to lower cost locations has increased, with top-tier firms leading the way yes Q4 FY14 24

26 COMMBANK LEGAL MARKET PULSE QUARTER 3 214/15 Further information For further insights or information, please contact: Marc Totaro, National Manager Professional Services Mobile: Phone: marc.totaro@cba.com.au Web: commbank.com.au/legalmarketpulse For media inquiries, please contact: Sarah Gibbons, Public Relations Advisor Phone: sarah.gibbons@cba.com.au About Beaton Research + Consulting Beaton Research + Consulting is a full-service research firm which offers a full range of solutions for professional services firms, financial services firms and associations. Their expertise includes benchmarking, thought leadership, brand solutions, customised solutions and client satisfaction. Things to know before you Can: This report is published solely for information purposes. As this report has been prepared without considering your objectives, financial situation or needs, you should before acting on the information in this report, consider its appropriateness to your circumstances and if necessary seek the appropriate professional advice. This quarterly report has been prepared independently by Beaton Research + Consulting and commissioned by Commonwealth Bank. The confidential on-line survey used to prepare this report was undertaken by Beaton Research + Consulting in February 215. The report is based on the views of 31 legal firms across Australia and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to the accuracy, reliability or completeness of any statement made in this report. The project was undertaken in compliance with the requirements of ISO Commonwealth Bank of Australia ABN

CommBank Legal Market Pulse Conducted by Beaton Research + Consulting

CommBank Legal Market Pulse Conducted by Beaton Research + Consulting Quarter 4 14/15 COMMBANK LEGAL MARKET PULSE QUARTER 4 14/15 Contents Foreword 1 Economic outlook 2 Snapshot of survey findings 3 Firm