Investment in tech forecast for 2016 as law firm fee income grows

Investment in technology is a key theme for 2016 with signs that law firms are looking to increase their IT budget, as a strong first half year sees law firm fee income increase by almost 5% in the quarter ending 31 October 2015, according to the latest quarterly report by Deloitte.

According to a recent survey by IT trade association CompTIA, 72% of law firms rate technology as highly important to their business and 71% plan to increase their budget for IT over the next 12 months.

However, many law firms still lack a clear IT roadmap, with 40% of professional services firms saying they need help with their technology strategy.

The results echo PWC’s respected UK Law Firm Survey 2015, which found that 95% of law firms plan to invest in IT in 2016 to improve their efficiency and competitive edge.

That report found that 80% of firms now recognise the need to respond to the digital age – albeit concluding that only 23% so far have made changes to how they operate – and that 82% acknowledge that digital technologies such as analytics and the cloud will provide alternative channels to interact with clients.

At cloud-based practice management system provider Clio, lawyer in residence Joshua Lennon forecasts further adoption of cloud computing in 2016, commenting: “Firms that have already invested in technology are reporting strong gains in profitability and efficiency, compared to those firms that have not yet recognised their need to update. This instant access to information is also making it easier for firms to get up-to-the minute insights into their firm’s finances, where they can best apply their efforts to reduce billing friction.”

Information security is also expected to dominate, as firms react to the growing threat from cybercrime. According to Ed Stroz, executive chairman of Stroz Friedberg, 2016 will see a particular focus on the threat posed from insiders. “Until now, the business world’s attention has been focused squarely on external threat actors. But in 2016, insider threats – current or ex-employees with knowledge of, and access to, the corporate network – will take centre stage, forcing human resources leaders into the growing cross-functional cyber security team,” Friedberg predicts.

“Expect leading edge companies to start proactively addressing the insider threat risk by investing in technologies that identify, and in some cases prevent, insider threats before they cause material damage.”

The forecasts come as the latest quarterly legal sector survey from Deloitte finds that the UK top 100 law firms increased their fee income by 4.7% in Q2 of FY16, with an overall increase in fee income of 4.5% over the first half of FY16, predominantly due to increases in fee earner numbers.

Average fee income increases of just over 5% were achieved by firms in the 1-10, 26-50 and 51-100 size categories this quarter, with more modest growth of 2% achieved by firms in the 11-25 size category.

Jeremy Black, professional services partner at Deloitte, said: “This quarter was a particularly strong quarter for the largest firms with strong demand in certain practice areas and an increased focus on pricing and profitability driving growth.

“For firms outside the 1-10 size category, increases in fee income have largely been achieved through growth in fee earner numbers rather than increases in chargeable hours per fee earner or rates. A focus on pricing and profitability will be key in the second half of the financial year given some of the pressures firms are seeing on fee earner salaries.”

The survey also found that participants expect a relatively strong third quarter, with firms predicting average fee income increases of 6%.