Only two-thirds of smaller firms reported increased revenue. Some (9%) reported a decline in revenues.
Talent retention, pressure on fees, compliance and regulation, and inflation are the key sectoral challenges for the next three years ahead, the survey finds.
Talent
Retaining talent is the key challenge for larger firms, while fee pressure is the biggest issue for smaller firms.
However, 51% of firms overall cite staff retention as an issue.
The evidence indicates that, for firms outside the top 20, staff retention is not a problem.
For larger firms, primarily in Dublin, attracting and retaining staff is a real issue, with firms continuing to respond with pay-and-reward package increases over the previous 12 months.
Nine in ten have delivered pay increases of up to 15%, as well as a variety of other initiatives.
Of those surveyed, which included managing partners, senior partners and department heads in 111 law firms, the top-20 firms all saw an improving outlook.
This optimism contrasted with just 27% of smaller firms that expected a better year ahead.
The majority (62%) of smaller firms predict stability at best.
The Evelyn Partners annual Ireland law-firm survey is now in its 15th year.
Revenue growth
Fee increases were almost universal among top-20 firms, while a majority of smaller firms (seven in ten) increased fees.
In terms of trends, this reflects the continuing surge in firms passing on fee increases seen in recent years.
Increasing fees tops the tactical initiatives undertaken to improve financial performance, the survey shows.
Fee pressure is a bigger issue for smaller firms.
Half of firms surveyed outside the top 20 cite fee pressure as a key challenge, an issue which didn’t feature significantly for the larger firms.
For the sector, there is a trend of significant improvement in revenues overall since 2020.
However, smaller firms are still behind larger rivals.
Sectoral outlook
Approximately one in four firms think the legal sector generally improved over the past 12 months and will continue to do so in the next 12.
However, a notable minority — consisting exclusively of smaller firms — believe that the outlook for the legal sector in Ireland has deteriorated in the last year (17%) and is expected to remain challenging in the next 12 months (19%).
Reported firm profitability indicates the divergence between larger and smaller firms. Top-20 firms were almost universally able to convert increased revenue to increased profits and were more successful in maintaining margin.
All of the top 20 firms reported increased revenues over the last 12 months, with almost all reporting increased profits.
Growing revenues at two-thirds of smaller firms didn’t translate as effectively into improved profitability.
Only half reported increased profits and nearly one in five signalled a decline in their profitability, notably experiencing a greater squeeze on their margins.
Smaller firms are focused on reducing operational costs, while bigger entities focus on driving sales and marketing, and engaging third-party advisers by an order of approximately three to one, the survey shows.
For smaller firms, the challenge of attracting and retaining staff may not be as significant.
Seven in ten non-top-20 firms report low turnover of staff, while 60% report that they have no vacancies, and 40% did not have pay increases.
Attracting and retaining the right people is seen as the biggest challenge for the next three years for top-20 firms, according to 69% of respondents.
Lateral hiring
Lateral hiring is the preferred mode for top-20 firms to expand their range of legal services.
While M&A is seen as a big opportunity across the sector, this is more aspiration than market reality, since M&As are infrequent, Evelyn Partners points out.
Across the sector, regardless of firm size, more than four in ten partners are left to plan and manage their own financial and retirement planning without support from their firm.
The key issue across the profession is a lack of time to focus on financial planning (six in ten respondents) while this issue is significantly more pronounced in firms outside the top 20.
Partner retirement
Only 13% of firms start to consider partner-retirement planning on promotion to partner level.
Top 20 firms perform better, with four in ten top 20 firms starting retirement planning on promotion to partner.
Almost all firms encounter obstacles to providing suitable financial-retirement planning for their partners.
John O'Callaghan (managing partner Evelyn Partners) said: “While smaller firms are more focused on ‘nuts and bolts’ challenges, their top-20 competitors are focused on more strategic issues, and are investing in initiatives and technology to address these.
“The scale and availability of capital in smaller firms means that strategic choices on where to invest resources are more important, but often impeded by time and information constraints.”