How to improve on the legal consultancy model

The legal consultancy model, sometimes called the ‘fee retention’ model, has become increasingly popular in recent years with firms such as Keystone and GunnerCooke growing in scale and popularity.

These ‘consultancy platforms’ offer senior lawyers more control and independence over their working lives and a greater share of the fees those lawyers generate, when compared to traditional law firms.

There is no doubt that the consultancy platforms have blazed a critical trail and offer significant improvements on life as a lawyer in private practice, but they are increasingly due an update.

The larger fee retention platforms have grown to such an extent that their lawyers can at times feel a little isolated and removed from the central management team.

Some working within the model feel that the quality of recruits is perhaps not quite as high as it has been historically, with growth prioritised to meet investors’ expectations.

Further, the tax treatment for lawyers operating in the consultancy model via personal services companies is not what it used to be. Legal consultants are likely to start paying between £5,000 and £20,000 more per year in taxes over the coming year or two as corporation tax rises to 25%, the higher rate of dividend tax holds at 39.35% (but now applies on earnings over £125,000) and the dividend allowance reduces to just £500 per year.

Many consultant lawyers take home between 60% and 75% of the fees they generate (gross of taxes), which often translates into 30% – 40% of their fees net of taxes.

So how can the legal consultancy model be improved? Well, at Clearlake, we have set out to re-imagine independent practice for the 21st century.

For starters, our lawyers typically keep around 85% of the fees they generate, they play a key role in our small, elite partnership, they have opportunities to build scalable, tech-enable businesses around their practices and they receive significantly better tax treatment.

How can we deliver all this?

For starters, we run a lean model, controlling costs carefully and directing spend on the best possible resources, but only those resources needed for our practice.

Secondly, we are a limited liability partnership (LLP). Our lawyers are self-employed members of our LLP, genuine partners in our firm. That is a critical difference. It means we are not pressured into growth at any cost by investors because we own our business ourselves.

It also means that our partners play as much of a role as they want to in our collegiate partnership decision-making. 

And, as self-employed members of our LLP, our lawyers have much cleaner tax treatment (in fact, the most advantageous personal income tax treatment in the UK).

With an 85% (gross) fee retention and better tax treatment, our lawyers can typically end up with around 25% higher net take home pay for the same earnings in our partnership model.

Further still, as genuine partners at Clearlake, our lawyers have no need to administer a personal services company and they bear no IR35 risk.

In many ways we think of our partnership model as the next stage in the evolution of independent practice, combining the best aspects of the legal consultancy model with the best aspects of a traditional law firm.

We have also thought very carefully about ensuring that our corporate structure is ready and optimised for the significant changes coming to the legal industry as a result of the deployment of emerging legal technologies.

Moreover, at Clearlake, we are committed to building a partnership of like-minded lawyers who will continue to collaborate and pull together to move the legal industry forward into an exciting future (without the politics and disagreements that come from fee sharing in traditional firms).

We are carefully and deliberately building a City practice with an elite brand – a partnership of people from exceptional backgrounds who want to play a role in building the next generation of City law firm.

And perhaps most importantly, we offer our lawyers what we call “fully supported independence”, an initiative to take as much of the risk as possible out of independent practice.

We guarantee our partners regular opportunities to pitch to new clients, we provide access to supporting lawyers and paralegals at all levels and areas of expertise, we provide access to cutting edge legal technologies and we can finance invoices, where helpful.

We also deliver all of these support services without upfront investment from our partners. Our lawyers operate as independently as they want to and only pay towards these services where they use them.

Finally, we encourage our lawyers to build their own teams and to develop a bespoke technology offering for their own clients, supported by our growing technology function; effectively building their own scalable business from within our firm.

At Clearlake, we believe it is time for the industry to move on from simple billable hours and to think about scalable, tech-enabled models of delivering legal services that benefit both lawyers and clients.

If you are a lawyer practising in the legal consultancy model but looking for a new challenge and a more advantageous fee structure then we encourage you to take a look around our Clearlake Careers website today or find out how we work.