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Outside investment in law firms.

The Law Society Gazette on 1st May 2008 carried an article saying that firms had to shape up for the stock market.

So how likely is it that a high street practice is going to be attracting the likes of Duncan Bannatyne from Dragon’s Den and receive pot loads of money to become a national player?

I suspect every solicitor knows the answer to this one and it would be simply that it is extremely unlikely that anyone would want to put money into solicitors firm. I suspect the only outside investment that will come into the high street firms and smaller regional commercial practices will be from legal executives and non-qualified family members. I would be extremely surprised if anyone with any business sense wanted to put money in as the returns are so slight on most legal work. The only difference is of course when work is done in bulk and there are reasonable profit margins about. However firms like Hammonds Direct, the other volume conveyancing operations have been the first to announce redundancies due to the recent credit crunch, and I think this is a good indication of the fickle nature of the legal markets in general, and this is highly likely to deter any investments into anything outside the magic circle firms in London.

One side effect of the bill permitting outside investment is probably unthought of yet, but there is the possibility that any potential trainee solicitor with money to invest could in fact buy their own training contract.

Whilst you may think this is slightly fanciful, I have at present registered with us a firm in the north east of England who has been running a successful property investment company for some years, and are is on the lookout for a firm to give him a training contract with the very good possibility that he would invest in that practice in return for the chance to qualify. Whilst this might sound slightly desperate, it is going to become more difficult for anyone other than students with straight A’s and B’s at A level, a good 2:1 from a red brick university, and a straight forward career to date to obtain the training contract. There are more and more legal practice course graduates out there without a training contract, who are going to be continuing to apply for training contracts for a good number of years. Whilst all the colleges are expanding the numbers on their courses are more out piecing students, and here to take more money off potential lawyers before they have the chance to qualify, this is going to get increasingly worse over the years, I think. It may even return to the old system almost of potential lawyers needing to have family connections to firms or the finances behind them to able to qualify as posts although look as if they are paid for the purposes of the Law Society minimum salary are actually posts where the potential lawyer is expected to invest in the practice from the outset, thus ensuring his or her commitment to the firm.

I suspect that the Legal Services Bill will make no difference at all to most practitioners outside the firms such as Clifford Chance and Linklaters, I am sure will eventually end up with external shareholders capitalising on the rather large profit levels that sort of firm that seems to make.

Jonathan Fagan is Managing Director of www.ten-percent.co.uk, specialist online legal recruitment consultant covering the whole of the UK and the international legal job market. He is available for comments and for free careers advice at cv@ten-percent.co.uk

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