Can professional services keep up the pace?

We invited a selection of HSBC UK’s leading law firm clients at the end of March 2024 to meet the Minister in the Ministry of Justice (MOJ), Mike Freer, as there has been much interest given the proactive approach taken by the MOJ to drive inward investment through UK legal services.

Minister Freer set out how the MOJ can support and advise law firms to underpin inward investment into the UK as part of the MOJ’s strategy, to ensure UK competitiveness of jurisdictions for legal services, sensible regulation, and law-making procedures.

The exchange was instructive for a couple of reasons. Firstly, it underlined the significant value the UK Legal Services sector brings to UK investment, generating over £43.7bn revenue in 2022, with English law covering 27% of the world’s 320 legal jurisdictions. (Source: thecityuk.com – ‘Legal excellence, internationally renowned: UK legal services 2023’)

Secondly, the managing partners of some of the UK’s top law firms learned of government support which could help them face current challenges within the sector. It also highlighted what the government can do to maintain and increase the attractiveness of the UK jurisdiction for dispute resolution.

HSBC UK - with its sector expertise and its local market knowledge in countries across the world - can help further support sector growth.

Additionally, as the number one bank for number of transactions and value of debt lent to the sector over the past five years,* we’re supporting the sector’s growth in more traditional ways too.

(*Dealogic, March 2024)

The UK’s legal sector is in a strong position. It has proven resilient even in these challenging times, and firms that diversified their offerings, in terms of practice area and location, have done well, with many seeing fee income growth.

Professional services firms continue to pursue growth strategies with M&A still being discussed, despite the rising cost of debt and macroeconomic headwinds, as partners acknowledge the need to consolidate to increase market share within existing markets or diversify their offering through bolt-on acquisitions.

HSBC UK’s latest research of the legal sector anticipated its growth ambitions. Over half of companies with an existing international presence indicated plans to expand it, and a majority expected M&A activity to grow.

Whilst there are plenty of opportunities for professional services firms within the UK and abroad, the environment they operate in is not without its challenges.

In the more immediate term, both the legal and accountancy sectors face margin pressure as wage inflation remains high and it becomes increasingly more challenging to pass higher costs onto clients as higher fees. Professional services firms should be inquisitive about the transformative potential of AI.

Furthermore, investment in cybersecurity is no longer an issue purely for the CTO but has moved firmly onto the managing partners’ agenda. We are seeing spend on cybersecurity risk management as a proportion of revenue increasing as a result.

Growing regulation including the Basis Period Reform is just another example of where our professional services clients have to remain resilient and future-focused, as those without a March year end have to navigate the change in tax rules and manage their cash flow accordingly.

Whilst achieving the level of growth seen in the post Covid boom years may be more challenging due to macroeconomic factors, we will continue to support professional services firms to deliver robust growth plans.

The team I support is comprised of dedicated client-facing colleagues across the world, each deploying specialist knowledge of the sector and their local market. HSBC UK, and the wider bank, plan to invest over the next five years to ensure an ever-improving experience for our clients in the sector.

Strong growth and resilience put professional services in one of the most enviable positions of any industry today. At HSBC UK we will be doing all we can to support the sector’s ambitions to thrive and expand.