Financial advice for stability in an unstable world
The coronavirus pandemic has created shockwaves in every industry, and the legal field is no exception
The coronavirus pandemic has created shockwaves in every industry, and the legal field is no exception. As court proceedings and jury trials have all but ground to a halt, attorneys nationwide are seeing a serious downturn in demand for their services. Naturally, this has created a massive financial upheaval in the legal industry, with law firms now scrambling for strategies that can help them weather the storm.
If you’re an owner or partner of a law firm, you understand that the creation and implementation of these strategies are time-sensitive. This is why we’re here today to talk about the unique risks law firms are now facing in light of the pandemic, as well as some smart strategies they can employ to mitigate losses.
Financial Management Risks for Law Firms
Even though law firms historically weather economic downturns pretty well, it’s still far too early to tell what long-term economic effects the pandemic will create.
● Market shift – Just as the 2008 recession heralded an explosion in new business models and entrepreneurs, so the COVID-19 pandemic will likely do something similar in the coming years. For business law firms, this is great news; new business owners will need a lot of help navigating unfamiliar terrain in contracting, employment, and workplace compliance regulations–all of which will translate to steady work.
However, one market shift that has had global repercussions is the mandatory move to working from home. As professionals worldwide move their practices online, their finances may suffer if they continue to pay utilities and rent or property taxes on their brick-and-mortar establishments. Moreover, remote work may adversely affect a firm’s company culture or mission, which could minimize their market standing.
● Asset liquidity issues – These new work-from-home mandates have created unique problems for the asset and wealth management sector, with many firms having activated their business continuity policies. Valuation and liquidity monitoring processes may be significantly affected by extended market or exchange closures, as seen in this year’s prolonged Lunar New Year holiday in China.
Moreover, indefinitely suspending the redemption of funds is a sensitive and highly-involved process which can strain relationships between clients and fund directors, ultimately impacting the financial health of your firm.
● Growth and downsizing – In an effort to alleviate the financial repercussions of the pandemic, law firms nationwide have been forced to dole out pay cuts and slash their workforces. However, most law firms are opting for significant pay cuts in favor of outright laying off or furloughing to protect their employees and their families.
For example, Akerman, LLP in Miami has implemented a sophisticated pay cut structure for its employees. Most partners will see a 12.5% cut in their annual draws, whereas others with a unique compensation plan will see up to a 17.5% cut in their draws.
Unsurprisingly, growth is low on the list of priorities for most firms, as the main concern is stabilizing their finances so that they can outlast the economic downturn.
How Law Firms Can Protect Themselves
While most law firms have already put financial risk management plans into action, it’s never unwise to adjust them as the pandemic evolves. Here are a couple of risk mitigation strategies you can implement to keep your firm afloat.
● Savings plans – Most, if not all, law firms can attest to the unique uncertainty of budget planning for the coming fiscal year. For this fiscal year, the uncertainty was most apparent in client engagement, a sector in which most firms were able to dramatically cut costs. With stringent social distancing protocols in place, firms could put money otherwise designated for client meals, events, and travel back into their coffers.
While it’s impossible to predict what the coming year will hold, firms can also expect to save big on general travel costs as well. However, any savings plan created by firms will have to be dynamic enough to withstand whatever financial storms may still come.
● Stable investment options – Stable is a rare-seen word in 2020, but there are a few reliable investment routes that could help your firm survive. One of these routes is to invest in client services that will foster trust, such as crisis advisory.
It’s also wise to stay on top of knowledge that may be relevant to your clients. Investing in hard data and other resources that can help you offer sound, impartial legal advice is an excellent client investment option. Another good option is to invest in novel communication methods (i.e. not emails or website articles) that will get this information to your clients quickly.
Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area.