The £1,000-an-hour corporate partner has arrived in the
UK, according to research by
Legal Week, which finds clients this year facing substantial increases to their legal bills.
More than two-thirds (68%) of respondents to The Verdict, this month’s poll of senior in-house lawyers, said rates had increased by between 6% and 10% in the past year, with the majority putting top-end charge-out rates for partners at £500-£700 an hour.
A further 36% had experienced hourly rates of more than £700, including 4% who had encountered rates of more than £1,000. The going hourly rate for a mid-level associate was cited as £300-£400 by a clear majority of clients.
Partners at top 10 City firms refused to comment publicly, but partners conceded privately that partner rates of £700-£800 per hour are now not unusual at magic circle firms.
No firm would admit to charging headline hourly rates as high as £1,000 but partners said that instructions agreed on flat fees can equate to such levels, particularly on premium corporate work.
One City partner at a US firm said: “Transaction size and complexity is increasing and there have been meteoric salary rises for associates, so it is no surprise that rates are up.”
Virgin general counsel Josh Bayliss agreed that increasing rates are being driven by a buoyant market: “The best people are in high demand and very sizeable M&A deals continue to be done. If rates that high are being charged there must be an element of premium to reflect market conditions or complexity.”
In-house counsel also said they were footing the bill for the current boom in salaries and partner profits, with 55% saying they are picking up the costs to a ‘substantial extent’ and 18% saying rising costs were being ‘entirely’ passed on to clients.
Talkback: Is £1,000 an hour a fair rate for the best City lawyers? Click here to have your say.
I don’t mind paying for brain power but I object to paying £400 an hour for photocopying.
I feel I speak for every trainee when I say conclusively that you won't be paying partners to photocopy. What do you think they have trainees for!
Speaking as an in-house lawyer who has previously been in private practice for many years, it is easy to by cynical about the increasing rise of law firm rates in the light of the many stories about the escalating salaries paid to associates and sums taken home by partners. However, while people have been speculating for many years that the business model is not sustainable on a long term basis the fees salaries and profits made by the top firms continue to rise thereby suggesting that perhaps it is after all.
Rates are of course only one half of the equation. The rates are often excessive and I think many London law firms delude themselves that their skills are unique or worth the rates charged. External lawyers do frequently add considerable value but charging £10,000 for a 10-page letter is not easy to justify. They need to be more mindful of "value added".
Regional firms are often more responsive and provide better service at half the price. City firms can be worth it but only in specific transactions and specialisms - which lead them to fail to give holistic advice. Hourly rate charging is becoming increasingly unjustifiable.
I wonder whether anyone has done similar research to work out what hourly rate the fees paid to banks on headline transactions equate to? Their fees, charged on a percentage basis, typically make legal fees look puny by comparison. The fact is that lawyers across the board are underpaid by comparison with bankers and so high hourly rates are needed to stop the flood of talent away from the profession.
Female lawyer is entirely right, there are plenty of folk earning more than the lawyers - do you really think we take home our hourly rates? When will people get over the idea that for the hourly rate you are just paying for the person? It covers ALL the overheads. So no wonder the London rates are higher, so is the rent. Mind you, do you want to pay the Brummie lawyer his travel time / travel expenses to come to your London HQ?
'Do people really think we take home our hourly rates?' Well, not if you're an assistant but at many firms partners effectively take more out of the business than they bill. So in that case, yes.
I wonder why any of us are willing to carry on doing publicly-funded work when we are lucky if we get £60 per hour.
People forget that when paying for an hour of a lawyer's time, it is not just that hour that is being paid for. What about the years of training and experience? Then there are the resources needed - it takes a small fortune to maintain a comprehensive tax library (paper and online) and to pay for/internally arrange courses to ensure that your lawyers are up to date with an ever-changing and increasingly regulated business environment. And the support services, such as secretaries, document processing, IT (and all the equipment that goes with it - such as BlackBerries for everyone to meet the demands of clients themselves that lawyers are constantly available), finance (someone's got to collect those huge bills) etc etc.
Would you rather pay more for someone with the best resources at their fingertips (who should therefore be able to give you more prompt (albeit it at a higher rate) and more likely to be accurate and up to date and accurate advice? I'm not saying less well resourced firms don't have the same standard of lawyers, just that larger firms make it easier for you to do your job well and efficiently - my experience of medium-sized UK and global firms leads me to that conclusion.
Even the top law firms are extraordinarily badly run. They have captive customers, and in a bull market, unearned, huge revenue growth. This is despite the fact that associate utilisation is often very patchily managed. Many partners' motivations revolve around indulging their own idionsyncracies, which due to the nature of the partnership model, they are able, expensively, to achieve. Promotions to equity are often a disaster and at magic circle firms, it is still - despite FF and Linklater efforts - difficult to cull poor quality junior partners. Worse still, the top individuals making decisions are, if not financially illiterate, not top notch (in terms of financially engineering and managing businesses of that size). The top line revenue growth of all top firms, however, is - in today's market - fantasic. As an I-banker, now in private equity, I would love to get my hands on one of the MC firms, gut it, realign its strategy, and exit 2 years later. They are classic underperforming old-school British businesses - i.e. ripe pickings.
Simple "pricing" models assert that price is determined by the level of demand and supply for particular goods or services in the market (and they assume no cartels or other price fixing). To sustain fees of £1,000 an hour fees, market demand for the services of magic circle law firms must clearly be higher than the ability of the market to supply them. So, rather than raise eyebrows and chastise the magic circle for "money-grabbing" as many commentators no doubt will, criticism should instead be directed at the non-magic circle law firms who have failed to provide the supply that would force the magic circle to keep their fees static.
Related Articles
Latest Jobs
