Optima brands law firm model ‘unsustainable’
AN “unsustainable” partnership model is driving small firms to the brink of collapse as profit margins tumble, Optima Legal has warned.
An “unsustainable” partnership model is driving small firms to the brink of collapse as profit margins tumble, Optima Legal has warned.
The volume powerhouse said firms would need to adapt their models and invest in technology if they are to survive the enactment of the Legal Services Act.
Optima partner Anthony Ruane told The Lawyer: “Law firms that adhere to the traditional partnership model, seeking short-term gain and unacceptable profit margins, are finding that this approach cannot be sustained in the current market.”
The fact that Leeds firm Fox Hayes was placed into administration last week, he said, was a clear sign of the financial pressure on firms.
“Margins are so small at the end of the chain that it cannot be sustained on a partnership model,” he insisted. “They fail to invest in the long term. Our model is better than that.”
Ruane said firms were queuing up to offload their volume businesses on to Optima because of growing tensions between volume and commercial practices.
“The market’s consolidating,” he said. “Most firms have grown to the appropriate size but their capacity has decreased.”
It is Optima’s economy of scale and flexibility, he added, that has spurred its growth to the point where turnover stood at £34m at the end of the 2007-08 financial year.
Optima has just unveiled a £6m investment programme that will be used to fund an ongoing acquisition spree. ;The ;investment programme comes as the firm picked up a number
of new clients, including providing ;remortgage advice to National Australia Bank’s ;customers ;and repossession advice to Britannia Building Society.
To receive our free Lawyer News Daily news and comment email, click here. Or get the latest news, features and comment as it’s published with our free RSS feed.
View results 10 per page | 20 per page
Readers' comments (14)
Anonymous | 26-Jan-2009 12:02 pm
Stupid PR
What a stupid PR from an utterly unknown law form. I pity you
Unsuitable or offensive? Report this comment
P. Ah | 26-Jan-2009 1:58 pm
Eh?
What PR? Eh?
Unsuitable or offensive? Report this comment
Anonymous | 26-Jan-2009 3:18 pm
Pricing Competition
One has to ask whether the acquisition of all of the competitors will have anything but a negative impact on pricing. The Short-sightedness of the lenders in restricting the size of panels means that there will be no volume players left. I hardly think that Anthony Ruane is competent to speak on the issues of a traditional practice. From his article he mentions that the Optima has three areas of diversity but not the backing of DLA Piper in times of adversity.
Unsuitable or offensive? Report this comment
Anonymous | 26-Jan-2009 4:05 pm
stupid PR
Can the intellectual content please pick-up. 'What a stupid PR', 'unknown law form'. Who said the standards in our schools were declining?
Unsuitable or offensive? Report this comment
Bish | 26-Jan-2009 4:15 pm
wow
Getting free PR really is easy, isn't it?
Unsuitable or offensive? Report this comment
Anonymous | 26-Jan-2009 5:14 pm
Reality check
"Not the backing of DLA Piper in times of adversity" - no, instead they have the backing of Capita with a market cap of over £4bil (and the other big volume player enact have the backing of First American Corp, with a market cap of over $2bil).
"An utterly unknown law firm" - fairly well known to the over 100k individuals they act for every year.
"Stupid PR" - certainly PR but I am not sure it is stupid. Commodity legal services will have a huge effect on mainstream law firms in the coming years where scale will be key.
Unsuitable or offensive? Report this comment
Anonymous | 26-Jan-2009 5:14 pm
Private Equity -v- Member funding
Who has the decision here? When you have staked a lot in your business you "will do what it takes" to ensure survival. Thankfully, this means that it is in your hands unlike Optima who for the most part must be beholden to financiers. Ok losses can be carried for a period of time while competitors fall by the way but the financiers will want their "pound of flesh" by way of a significant return. Great PR stunt Anthony but we all know the reality. See Hammonds Direct for the down side.
Unsuitable or offensive? Report this comment
City Cynic | 26-Jan-2009 6:29 pm
News just in - a shocking consequence of this article!
Clifford Chance has decided, as a result of this article, to dissolve. David Childs, CC CEO, said: "We had never before thought about the sustainability of our business model. Now this chap Ruane from Optima has pointed out to us what idiots have been we have decided to do the only sensible and honourable thing - we are going to dissolve the firm and all become deck chair attendants in Torquay. Apparently that's much more sustainable." CC Senior Partner Stuart Popham commented "I don't know what we'd have done if Optima hadnt alerted us to all this - we'd probably have carried on as we were unsustainably each earning £1m+ per year. What fools we have been!"
Unsuitable or offensive? Report this comment
Anonymous | 27-Jan-2009 10:18 pm
Unsustainable
An unsustainable model.
Unsuitable or offensive? Report this comment
Anonymous | 29-Jan-2009 10:36 am
Here comes the cavalry
Oh Anthony what is that i see coming in your direction. Oh its the Competition Commission - was good of you to highlight it to them with your PR stunt.
By the way how jumpy are Capita likely to be when they see this happen
Unsuitable or offensive? Report this comment