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Our recent report, The three key competitive threats facing City law firms, starts with a familiar story, explaining that City firms have long enjoyed dominance in the UK legal market. But, recently we've seen a plot twist, with disruption from a host of new competition, from the rising presence of US firms, to the Big Four, alternative legal service providers (ALSPs), and so on. These new business models, such as the rise of platform law firms and alternative business structures (ABS) have been transformational, through methods like hybrid working, flexible hours, and consultancy. 

London's legal market has always been fast-paced, cut-throat, and competitive, continuously rising to challenges. But, City firms are now under increasing pressure and so far, they're proving resilient. Consider, for example, that increased fee income in 2022 and 65% saw a rise in profits.

To ensure future success, City firms will need to keep ahead of the curve, stay up to date with the latest trends, and mitigate potential risks. In this article, we explore three key competitive threats in detail, provide some necessary historical context, and offer potential solutions to help City firms overcome.

Threat one: US law firms continue to muscle their way in

Our report, The pros and cons of the global law firm, covered the increasing threat from US law firms in the UK legal market. Although this threat is now rapidly advancing, it's a threat that dates back at least forty years.

The loosening of regulations in the 1980s meant that US firms were allowed to practice UK law, providing a huge commercial opportunity. There were two core routes into the market: mergers and acquisitions (M&As) and . Both routes were vigorously explored over the following decades.

Many US firms aimed to solidify and advance in the market. They diversified their overall offering to meet the complexities of the global economy and they recruited the best lawyers from UK firms aiming to use their larger remuneration packages to secure a competitive edge over other law firms.

But, despite moderate gains, US firms failed to make the strides many predicted. Various US firms such as Howrey Simon, Troutman Sanders, and Riker Danzig, have either dissolved or retreated.

London remains the European city of choice for US forms, with a continuous stream of new entrants. The : client proximity provides US firms with an easy gateway into Europe, ample recruitment possibilities, the huge role London plays as a financial centre of the world, and so on.

At present, US firms are gaining ground and finding success. saw huge growth for US firms in the UK, with 23 of the firms, experiencing double-digit revenue growth, and seven experiencing a 20+% turnover.

The threat is significant and UK firms will need to rise to the challenge. The key for UK firms is to play to their strengths. They may not be able to compete in terms of pay, but they can offer a much better work-life balance. measured the average start and finish times for lawyers across a wide range of law firms and found that junior lawyers at UK firms are working just over 10 hours a day, compared to 14 for those working at global firms.

City firms should also double down on embracing tech. UK firms, due to the introduction of ABS following the Legal Service Act 2007, faced fierce competition, which arguably prompted an adoption. This provided a competitive advantage over US firms, one that UK firms need to retain in the future. Continuing sustainable investments in emerging tech is one simple way to meet and surpass the challenge posed by US firms.

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Threat two: The Big Four is targeting the legal services sector

Our recent report, Are the Big Four reshaping the future of legal services?, explored the rise of the Big Four in the UK legal sector. The Big Four entered the legal services market in the late 1990s, with a flurry of hope, gaining quick high-profile client wins. Their initial offer was succinct: seamlessly woven legal tech, project and process management, global brand recognition, and much broader non-legal expertise. In short, The Big Four offered quick solutions and better return on investment.

But they never quite made the impact many predicted. However, in recent years, the Big Four have made another foray into the UK legal market, expanding into legal services. They now offer scalable IT, alternative billing, and advanced consulting, risk, financial and tax advisory options. 

They now pose a very real threat to City law firms, as attitudes towards them swiftly change and clients focus on solutions and outcomes. According to market research by ½Û×ÓÊÓƵ, PwC doubled revenue in the last five years; KPMG Law tripled revenue streams in the UK in the past five years; Deloitte landed work with Fujitsu, BT, and EE; and EY Law partnered with Nokia, Tesco, and others.

City firms also need to realise and mitigate this risk quickly, which is possible through a multitude of ways. From revamping business models, moving away from the partnership model, expanding into other professional service areas, and broadly operating under ABS. Firms operating under ABS find it easier to raise capital to pursue acquisition opportunities and invest in new business lines, in a way that improves internal operations and improves their attractiveness to clients. In short, the ABS affords clients better value for money.

City firms also need to embrace legal tech, as mentioned above. We've seen some positive developments in the last few years, but they need to go further. The Big Four have gained an advantage through their enthusiastic embrace of tech, helping them to save money, time and other resources, finding quicker solutions for clients, and delivering higher value, more impactful work. City firms, in order to overcome the Big Four threat, must do the same.

Threat three: Rise of the legal consultants

Finally, according to our report, Rise of the legal consultants, as many as one-third of lawyers will become legal consultants by 2026. shows that platform law firms could absorb lawyers from 3,000 of the UK's 10,000 law firms that may close or merge in the next five years. Platform law firms pose a recruitment threat. Quite simply, it's an attractive new business model with the potential to entice a huge number of lawyers.

Under this model, lawyers are self-employed consultants, sharing revenue and keeping the bulk of client fees. Excess funds are spent via a centralised network, provided essential tool lawyers might need to fulfil and excel in their roles: insurance, branding, legal tech, and so on.

The model has already proved successful. Research from shows the number of lawyers at platform firms has increased by 45% in three years. It's perhaps no surprise, as legal consultants can pick their own hours, adhere to no strict hierarchy, report to no manager, and still retain much of the money they generate, clearly a much better work-life balance for lawyers,

Platforms firms themselves are thriving, and many clients are looking for the benefits they provide. Platform law firms reduce hierarchy, automate admin, reduce bureaucracy, and utilise the latest legal tech. All of that results in more time spent with clients and therefore a better client experience.

City firms can overcome the threat of platform law firms by embracing flexibility. Did you know that 60% of mid-level associates said they'd move jobs for a better work-life balance, while only 27% said they would leave for more money, according to an ? It's clear that platform firms should embrace hybrid working models, remote working options, and champion autonomy.

And they'll need to prioritise client-facing work. That means minimising bureaucracy by exploring new non-hierarchical structures, or at least structures that limit bottlenecking.

City firms need to ensure lawyers focus on the client experience, which will also provide a huge recruitment boost for City law firms as lawyers tend to enjoy client work more than admin. In short, they need to explore more innovative ways of working to compete with innovative new firms.

Read the three key competitive threats facing City law firms today.