Law Firms

Is there a law-firm rate bubble? Peer Monitor notes concerns, but sees few indications of trouble

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Law firm billing rates have reached “lofty levels,” raising concerns in some quarters that they are in a bit of a bubble, according to a report issued on Monday.

In 2019, law firm billing rates increased 3.8%, representing “a sizable jump” from the previous year’s increase of 3.2%, according to the Thomson Reuters Peer Monitor Index. The increase was the biggest year-over-year jump in rate growth in more than a decade.

In 2017, the increase was 3.1%, and in the two years before that, rate increases struggled to get above the 3% level, the report says.

The rate hikes are surprising amid talk of pricing pressure in the industry, the report says. Some fear rates could be in a bubble that spurs pushback from clients.

The report sees few indications of trouble, however. There was a slight deterioration in collections in 2019, but law firms were still able to capture most of the benefits of their higher rates.

The report also found demand for law firm services rose by 1% in both 2018 and 2019, the first two-year stretch for such increases in more than a decade. The report, available here, noted a 1% drop in productivity for 2019, however, due to a 2% rise in headcount.

Another report issued on Monday announced good financial results for law firms in 2019. Among 150 participating law firms, average revenue growth was 4.6%, according to the year-end “check-in” published by Wells Fargo Private Bank’s Legal Specialty Group. Law360 and Bloomberg Law have coverage.

The Well Fargo report found a 1.4% increase in demand for legal services, a higher number than the Peer Monitor finding.

“The industry successfully overcame headwinds including the government shutdown, geopolitical conflicts and slowing economic growth to deliver solid results this year,” the Wells Fargo report said.

“Law firm industry financial results continue to remain healthy and compare well with 2018’s ‘decade’s-best’ performance.”

In 2018, revenue grew by 5.9%.

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