Exclusive research conducted by Iberian Lawyer reveals that almost a third of law firms in Spain and Portugal plan to increase their fees. Is this feasible or is it too much of a gamble?
Nearly 30 per cent of law firms in Spain and Portugal are
planning to increase their legal fees because the economic climate
is improving, exclusive research conducted by Iberian Lawyer has
revealed.
A survey of more than 250 partners and business development
professionals at law firms in both countries showed that 29.6 per
cent of respondents answered "yes" to the question: As
there are signs that economic conditions are now improving, will
you put your fees up? Furthermore, 38 per cent of respondents
agreed that with economic conditions improving, fees would become
"less of an issue".
A total of 27 per cent of Spain-based respondents said they would
be putting their fees up, while 37 per cent of Portugal-based
respondents demonstrated a similar inclination. Meanwhile, the
survey also revealed that 37 per cent of Spain-based respondents
thought that fees would become less of an issue as economic
conditions improved, while 43 per cent of Portugal-based
respondents shared this view.
However, even those who said they did plan to increase their fees,
admitted that it would present a challenge. "We will of course
seek to increase our fees if possible," said one respondent.
"A lot of value has been lost – too much – in the
past few years and efforts should be made in the sense of
recovering some of it." But the respondent added that clients
remain very cost sensitive and will remain so for the
"foreseeable future".
Another participant in the survey also expressed doubts that fees
would go up: "The pressure on fees has been so high, and has
damaged the view that clients have on value for money so much, that
an increase in fees even after significant improvement in the
economic conditions will be unlikely to occur."
Foreign firms to blame for low fees
One participant in the survey commented that the downward
pressure on fees would be "difficult to change" in the
coming years. However, they added: "This pressure is an
opportunity for medium-sized firms and a risk for the larger firms.
Fees should not affect the services, if you are not happy with
fees, do not provide the service."
Another respondent lays the blame for lower fees at the feet of
foreign firms. "Fees pressure in Spain is remarkably strong
because of the presence of foreign law firms. In order to gain
market share, they have sold their services at a loss, damaging the
entire profession," they said. However, they add: "Some
specialities remain very well paid because of the added value
received by clients and the client´s difficulties in finding
alternative legal service providers. Clients behaviour is changing
because their policy of focusing only on fees brought them big
failures and losses."
But one law firm expert said it would be "interesting to see
which firms gamble on increasing their fees". He added:
"I´d expect the firms that have the clarity and
confidence around the value they provide to increase their fees,
but it will require both clear and careful communication with
clients. Most [firms] will worry it is too big a risk. Many firms
are scared to increase their fees because they fear losing
business."
Some leading firms in Spain do not expect fees to increase in the
near future. A Cuatrecasas, Gonçalves Pereira spokesman says
that, if the early signs of economic recovery in Spain and Portugal
continue, the firm anticipates that its revenues are likely to
increase "due to more cases and a higher market value".
But the spokesman adds: "We do not foresee fees rising in the
short term – except for those matters requiring very complex
and specialised treatment – for this to happen, the market
demand would have to increase significantly."
Limited increase
However, other law firm leaders reckon fees will go up.
Uría Menéndez managing partner, Luis de Carlos, says
fees in Spain have remained steady, or decreased, in recent years,
"due to the drop in activity as a result of the economic
crisis". But he adds: "Now that we are beginning to see
activity increasing due to the economic recovery, it is logical to
expect fees to increase, albeit in a limited way."
Rafael Jiménez-Gusi, a partner in Baker &
McKenzie´s Barcelona office, says his firm is among those
that will increase its fees. Why? "The main reason is that the
M&A activity is back. If we look at statistics, the level and
value of deals are close to the ones we were seeing in the same
period of 2008. There are more and bigger
cross-border/cross-continent deals so a firm like ours is
benefiting from this increase in deals."
The survey also suggests that, rather than switching between
different law firms, clients would get better service if they
fostered long-term relationships with their current legal advisers.
Two-thirds of respondents (66 per cent) said they agreed that
clients are more likely to get a better service if they give their
legal advisers the "security of ongoing work". This was a
particularly commonly held view in Portugal, where 80 per cent of
respondents agreed with this assertion (compared to 61 per cent in
Spain).
However, some respondents voiced their disagreement with this point
of view. "I do not think that clients get worse service by not
giving the security of ongoing work," one said. "I think
legal service providers try to give good service and good advice in
the course of their service provision, obviously in the hope that a
satisfied client will seek further legal services." Another
respondent said: "I believe the opposite, giving the best
possible service is the best way of getting ongoing work. I also
believe the fees model law firms have been using in the past has to
be rethought."
Meanwhile, the report also hinted at the damage that had been done
to law firm-client relationships by the decision of some clients to
purchase legal services via competitive tender. A total of 40 per
cent of all respondents believe that choosing legal services via
competitive tender has damaged the relationship of trust between
law firms and their clients and means a client´s legal
adviser is less likely to be "looking out for unforeseen
problems that could damage the client´s business". It
suggests that law firms subjected to competitive tender processes
may be less likely to "go the extra mile" for the client
in question. Ninety-two per cent of respondents said clients seemed
more likely to run competitive tenders since the start of the
financial crisis, while 83 per cent of respondents said clients
were being "less loyal and shopping around for services based
on low price".
A total of 39 per cent of respondents to the survey agreed that,
with more price pressure during the economic downturn, law
firm-client relations have become "less constructive and
cooperative, and more conflictual". This was a slightly more
commonly held view in Spain, where 41 per cent of respondents
agreed with the statement, compared to 34 per cent in
Portugal.
On the issue of loyalty, one respondent remarked that client
loyalty was now unusual and that price was "key in their
decisions". The respondent added: "I believe it will take
a long time to revert the current situation. Nevertheless, there
are loyal clients and I believe they get higher value for money in
the long term."
Clients will need convincing
But it is the issue of fees that is causing the most
disagreement in the market. Some lawyers say the decision by some
firms to drop their fees ended up harming not only the firms in
question but the legal market as a whole. As one respondent to the
survey put it: "The real victims of the crisis were those law
firms that offered highly commoditised services, those were
generally the firms that put fees down. These strategies damaged
the legal market and themselves.
However, whether clients will accept fee increases is another
matter. Sareb general counsel, Oscar Garcia Maceiras, says the
crisis has meant clients are more sensitive about legal costs.
However, he adds: "Companies have learned to distinguish
between sensitive legal activities or crucial legal matters, where
they do not rule the possibility of legal fees increasing, though
not substantially, and commoditised work, where the trend is not
fee increases, but rather fee decreases or fees remaining at the
same level."
Other clients say firms should exercise caution if they decide to
increase legal fees. Estradas de Portugal concessions legal
director João Canto e Castro says: "I think it will be
very difficult to convince clients, which during this period got
the same quality services at a lower rate, that they have to
increase their budget for external counselling." Kevin Doolan,
visiting professor at Harvard Law School, says lawyers need to
understand their clients' "drivers of value" and get
a price increase because they give more value. "This leads to
sustainable increases," he adds.
According to Fernando Ortega, general counsel at Siemens in Spain,
law firm should only increase fees if the "legal value added
is increased". He adds: "I don´t share the idea
that the enhancement of the economic situation is, per se, a reason
for increasing fees."
Iberian Lawyer law firm-client relationships survey: Key
findings
30%
Said they were planning to put their fees up
38%
Said fees will become less of an issue
66%
Agreed that clients are more likely to get a better service if they
give their legal advisers the "security of ongoing
work"
- Methodology: A total of 254 partners, associates and business development professionals completed a ten-question online survey in September and October 2014. A total of 183 of the respondents were based in Spain, 67 were based in Portugal, with 4 based in other countries.
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