M6931 Legal Services in Australia Industry Report

Home run: An increasing number of housing
transfers has supported revenue growth

IBISWorld Industry Report M6931
Legal Services in Australia

June 2016
Tristan Williams
2 About this Industry
15 Demand Determinants
27 Revenue Volatility
Industry Definition
16 Major Markets
27 Regulation & Policy
Main Activities
17 International Trade
29 Industry Assistance
Similar Industries
18 Business Locations
Additional Resources
4 Industry at a Glance
30 Key Statistics
20 Competitive Landscape
30 Industry Data
20 Market Share Concentration
30 Annual Change
20 Key Success Factors
30 Key Ratios
5 Industry Performance
20 Cost Structure Benchmarks
Executive Summary
22 Basis of Competition
Key External Drivers
23 Barriers to Entry
Current Performance
23 Industry Globalisation
Industry Outlook
11 Industry Life Cycle
24 Major Companies
13 Products & Markets
26 Operating Conditions
13 Supply Chains
26 Capital Intensity
13 Products & Services
27 Technology & Systems
31 Jargon & Glossary
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Legal Services in Australia June 2016
About this Industry

Industry Definition
Firms in the industry primarily provide

legal advice and representation, and the
preparation of legal documents. These
services are usually provided by
solicitors, barristers and legal aid offices.
Main Activities
The primary activities of this industry are
Conveyancing services provided by

lawyers and patent offices are also
included in the industry. The industry
does not include services provided by
in-house legal teams.
Advocate services
Barrister services
Conveyancing services
Legal aid services
Notary services
Patent attorney services
Solicitor services
Public prosecutor services
Government solicitor services
Title-searching services
The major products and services in this industry are

Administrative, constitutional and other law services
Commercial law services
Community legal services
Criminal law services
Industrial and workplace relations services
Intellectual property law services
Personal legal services
Property law services
Similar Industries
K6419c Custody, Trustee and Stock Exchange Services in Australia

Share registry services are involved in a variety of activities, including registration of newly listed companies
and communication of mergers, acquisitions and IPO activity.
L6720 Real Estate Services in Australia
Settlement agents, land agents and broking agent enterprises undertake conveyancing work in some states
using non-legally qualified staff.
M6932 Accounting Services in Australia
Accountants and auditors often specialise in taxation advisory services. They also prepare financial
statements and audit company financial records.
M6962a Management Consulting in Australia
Management consultants provide a range of advisory services to businesses, including strategic and
financial planning relating to potential mergers and acquisitions.
About this Industry
Additional Resources
For additional information on this industry

www.legalbusinessonline.com
Asian Legal Business
www.austbar.asn.au
Australian Bar Association
www.abs.gov.au
Australian Bureau of Statistics
www.lawcouncil.asn.au
Law Council of Australia
www.lawyersweekly.com.au
Lawyers Weekly
IBISWorld
writes over 500 Australian

industry reports, which are updated
up to four times a year. To see all
reports, go to www.ibisworld.com.au
Industry at a Glance
Legal Services in 2015-16
Key Statistics
Snapshot
Revenue
Annual Growth 11-16
Annual Growth 16-21
Profit
Wages
Businesses
$22.6bn 2.2%
1.9%
$10.7bn 19,913
$3.3bn
Business confidence index
Revenue vs. employment growth
% change
There are no major

players in this
industry
10
20
10
Index
Market Share
-5
-10
Year 08
-10
10
12
Revenue
14
16
18
20
22
-20
Year 08
10
12
14
16
18
20
22
Employment
SOURCE: WWW.IBISWORLD.COM.AU
p. 24
Enterprises
0.6%
6.0% 1.3%
NT
ACT
SA
7.7%
Level of criminal activity
1.0%
TAS
WA
Number of housing
transfers
Demand from financial
and insurance services
40.0%
16.2%
Number of divorces
QLD
p. 5
NSW
27.2%
VIC
Industry Structure
Life Cycle Stage
SOURCE:
SOURCE:
Mature
Regulation Level
Heavy
Revenue Volatility
Low
Technology Change
Capital Intensity
Low
Barriers to Entry
Industry Assistance
Low
Industry Globalisation
Low
Concentration Level
Low
Competition Level
High
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 30
Low
Medium
Industry Performance
Executive Summary | Key External Drivers | Current Performance

Industry Outlook | Life Cycle Stage
Executive
Summary
The past five years have challenged the

Legal Services industry, with the
aftermath of the global financial crisis
taking its toll on industry demand.
Industry revenue growth has slowed as
businesses implemented cost-cutting
measures. Fluctuating business
confidence has deterred many companies
from pursuing mergers and acquisitions
and other transactional work. Price
pressures have mounted over the past
five years as external competition for
commercial legal work, particularly from
accounting firms, has risen. Industry
clients have increasingly demanded
value-for-money over the past five years
and, in line with this trend, many clients
have switched from large legal firms to
cheaper small or mid-tier firms.
In response to these difficult
conditions, many large industry firms
restructured their operations,
outsourcing basic legal tasks and making
changes to remuneration, including
freezing wages and cancelling bonuses.
These measures helped protect industry
profit margins. Many major industry
firms also looked overseas for growth
opportunities. Herbert Smith Freehills,
Allens, and Ashurst all merged or formed
alliances with UK-based law firms in
2012 and 2013. Meanwhile, Mallesons
merged with Chinese firm King & Wood
PRC Lawyers, to become King & Wood

Mallesons, increasing the firms exposure
to potential cross-border transactional
work. On the back of these mergers,
industry revenue is projected to grow by
an annualised 2.2% over the five years
through 2015-16, to reach $22.6 billion.
The industrys fortunes are expected to
continue to improve in 2015-16, as the
low Australian dollar attracts foreign
investment interest in Australian
companies and infrastructure. As a
result, industry revenue is forecast to
increase by 1.9% in the current year.
Over the next five years, IPOs and
mergers and acquisition activity are
expected to rise on the back of largely
positive business confidence and
continued foreign investment. These
trends are expected to increase demand
for commercial legal services. Demand
for intellectual property protection is
expected to rise, as growing research and
development expenditure encourages
biotechnology firms to engage patent
lawyers to protect their new products.
However, a decline in housing transfers,
which is likely to reduce demand for
property-related services, is expected to
constrain growth. As a result, industry
revenue is forecast to grow by an
annualised 1.9% over the five years

Business confidence in Australia affects
demand for legal services, particularly in
relation to commercial activities. These
include contracts, mergers and
acquisitions and equity work. When
business confidence is positive,
companies are more likely to undertake
commercial activities, boosting demand
for legal services. While business
confidence is expected to fall in 2015-16,
it is projected to remain positive. .
criminal activity also reflects heightened

demand for lawyers, especially those
practising in criminal law. Criminal
activity is handled by criminal lawyers,
who typically specialise further according
to the type of crime. Criminal activity is
expected to fall in 2015-16, threatening
the growth of industry players that
specialise in criminal law.

An increase in the number of criminal
convictions reflects the level of crime and
the workload of the courts. Increasing
Number of housing transfers

An increase in housing market activity
can generate demand for law firms that
the transfer of property titles. Housing
transfers grew strongly in the two years
through 2013-14, spurred by demand for
apartments and townhouses. The number

continued
of housing transfers is expected to rise in

2015-16, presenting an opportunity for
industry players to grow.
been volatile. Demand from financial

and insurance services is expected to
fall in 2015-16.
Demand from financial and

insurance services
Finance and insurance firms provide a
large source of revenue for the industry,
particularly for industry firms that
specialise in transactional services like
mergers and acquisitions. Over the past
five years, demand for these services has
Number of divorces
A rise in the number of divorces
increases demand for law firms that
specialise in family law. The number of
divorces has declined over the past five
years, reducing work for family law
firms. The number of divorces is
expected to fall in 2015-16.

20
4
2
% change
Index
10
0
-10
-20
Year 08
0
-2
-4
10
12
14
16
18
20
22
-6
Year
09
11
13
15
17
19
21
Current
Performance
The Legal Services industry has

endured a challenging five years, with
fluctuating demand for legal services
due to the lingering effects of the global
financial crisis. Over the past five years,
volatile business confidence has
contributed to a slowdown in
transactional work including mergers
and acquisitions. As a result, demand
for commercial law services, the
industrys largest service segment, has
been subdued.
To offset weak demand for commercial
law services, many of the industrys
larger players have purchased smaller
firms or expanded their international

presence through mergers or alliances
with overseas law firms, increasing their
exposure to other markets. In addition,
many law firms have restructured their
operations, freezing wages and reducing
partner numbers to protect profit
margins. Industry revenue is expected to
grow at an annualised 2.2% over the five
years through 2015-16, to $22.6 billion.
Demand for commercial legal services is
expected to rise in 2015-16 on the back of
increased merger and acquisition activity.
As a result industry revenue is projected
grow by 1.9% in the current year.
Volatile demand
Demand for legal services has been

volatile over the past five years, with key
downstream industries reducing their
expenditure on lawyers in an attempt cut
costs. Fewer mergers, acquisitions and

IPOs over the period, meant
transactional business fell considerably.
In 2012-13, negative business confidence
Volatile demand
continued
and a slowdown in private sector capital

expenditure growth subdued demand for
industry services. Consequently, many
large commercially-focused law firms like
Clayton Utz and King & Wood Mallesons
recorded declines in revenue.
Since 2012-13, conditions in
downstream markets have improved,
with merger and acquisition activity
rebounding. In late 2013, positive
business confidence was evidenced by a
flurry of IPOs. This boosted the revenue
of law firms involved with these offerings.
For example, Herbert Smith Freehills
managed the Pact Group and Veda
offerings, and Clayton Utz provided
advice for the high-profile OzForex float.
In addition, the depreciation of the
Australian dollar over the past three
years has helped boost foreign interest in
acquiring Australian companies and

infrastructure, benefiting Australian law
firms. For example, in May 2015, Clayton
Utz acted as the Australian legal counsel
for Japan Post during its $6.5 billion
takeover of logistics company Toll
Holdings Limited.
Industry firms with property law
practices have also benefited from an
increasing number of housing transfers
over the past five years. Although
transfers declined in 2011-12 due to a
fall in house prices, transfer numbers
surged over the two years through
2013-14, with the reduced cash rate
fuelling demand for property. This
supported industry revenue growth,
with households increasingly requiring
industry players to undertake
conveyancing work.
Restructuring
In response to volatile demand, many law

firms restructured to capture new
revenue streams and protect profit
margins. Other measures included
freezing wages, cancelling bonuses and
reducing partner numbers. Some large
firms, such as Allens, offered voluntary
redundancy packages as an incentive for
employees to leave. Due to this
restructuring, industry employment is
projected to grow slowly over the five
years through 2015-16. This has also led
industry firms to offer fewer clerkships
and graduate positions, which has
contributed to an oversupply of law
graduates. Many prospective lawyers
have had to seek employment at firms in
a non-legal capacity or outside the Legal
Services industry.
Large law firms have also implemented
other strategies to deal with fluctuating
demand, such as merging or establishing
alliances with overseas firms to increase
their access to international markets,
particularly in the rapidly growing
Asia-Pacific region. For example,
Australias largest law firm by revenue,
Freehills, merged with UK-based firm
Herbert Smith in 2012 to create Herbert
Smith Freehills. Allens, another

prominent Australian law firm, formed a
global alliance with UK-based firm
Linklaters, and Mallesons joined Chinese
company King & Wood PRC Lawyers to
create King & Wood Mallesons. In 2013,
King & Wood Mallesons also merged with
London-based SJ Berwin. Blake Dawson
completed its merger with Ashurst in
November 2013 to create Ashurst
Australia. Slater & Gordon, one of the
largest providers of personal injury legal
services, has also expanded overseas
since 2012, purchasing several UK-based
firms including Russell Jones & Walker.
Smaller firms, which make up the
majority of industry participants, have
benefited from the international
expansion of the industrys larger firms
over the past five years. Cost-conscious
Australian companies have become more
inclined to use smaller law firms to
manage their legal affairs due to larger
firms high rates and the belief that they
might receive less attentive service. As a
result, the number of enterprises has
grown over the past five years with small
specialised players entering the industry
to service these clients.
Competition and
value
Over the past five years, traditional

bricks-and-mortar firms have faced
increasing competition from new online
players. For example, LegalVision was
established in December 2012 to
provide affordable online legal services
to small businesses and individuals.
The web-based nature of the firm helps
keep costs low and the firm aims for
quick turnaround times, usually
providing assistance to clients within
48 hours. In addition, firms like
LegalVision often provide services for a
fixed-fee, as opposed to the traditional
billable hour of most bricks-and-mortar
firms. This is in response to clients
increasingly demanding more
transparent pricing structures as they
have sought to rein in costs due to
challenging economic conditions.
Industry
Outlook
Firms in the Legal Services industry are

expected to face challenging conditions
over the next five years. Subdued demand
is expected to continue as businesses seek
value for money in their spending on
legal services. These price pressures are
anticipated to result in the further
streamlining of firms operations.
However, an increase in transactional
work is expected to support industry
revenue growth. Largely positive business
confidence is expected to encourage
businesses to undertake additional
mergers, acquisitions and other
commercial activity, with demand from
finance and insurance firms forecast to
rise strongly over the next five years. As a
result, industry revenue is forecast to rise
by an annualised 1.9% over the five years

Over the next five years, larger industry

firms are expected to benefit from their
increased exposure to overseas markets.
Over the past five years, firms including
Allens, Herbert Smith Freehills, King &
Wood Mallesons and Ashurst have all
engaged in some form of international
expansion, ranging from integrated
alliances to full mergers. These firms are
expected to become more active in

international markets over the next five
years. The Australian dollar is forecast to
grow slowly over the next five years, and
remain well below the highs of 2011-12
and 2012-12. As a result, overseas
companies will likely be encouraged to
invest in Australian businesses and
infrastructure, aiding international
Opportunities
Over the past five years, industry

operators have faced increased external
competition, as companies from outside
the industry have expanded their capacity
to provide legal services. In particular,
large accounting firms like KPMG, PwC,
Deloitte and Ernst & Young have poached
partners from law firms, particularly in
relation to commercial law. Accounting
firms have pursued this strategy to
expand their client base and provide
greater value to existing clients, as many
legal services are complementary with
these firms traditional tax and advisory
work. Government departments and
private companies expanding their
in-house legal teams, which is generally
perceived as cheaper than hiring external
legal providers, has also negatively
affected industry participants.
Industry revenue
10
% change
5
0
-5
-10
Year 08
10
12
14
16
18
20
22
Opportunities
continued
expansion. The forecast weaker

Australian dollar will also boost the price
competitiveness of Australian exports. In
addition, the China-Australia Free Trade
Agreement is anticipated to boost the
available commercial work for large
firms, as overseas companies use
internationally oriented Australian firms
to provide cross-border legal advice.
Although larger firms are expected to
benefit from having a global presence
and being able to act on an
international scale, some clients may
prefer to deal with legal teams based in
Australia. This is anticipated to boost
demand for medium-sized industry
firms. These medium-sized firms are
also expected to become more
aggressive in commercial markets, as
they seek to capture work from large
law firms by leveraging lower prices.
New industry firms that incorporate a
higher degree of technology in their
offering and offer alternative fee
arrangements, such as fixed-fee
services, are expected to continue
entering the industry to service clients
demanding greater specialisation, value
for money and fee transparency. As a
result, the number of industry
Demand
Industry transactional work is expected

to rebound over the next five years, as
largely positive business confidence and
heightened foreign investment boosts
merger and acquisition activity and
IPOs. As a result, companies are
expected to increasingly demand legal
services for advice regarding these
transactions. In addition, demand for
intellectual property legal services is
projected to rise over the next five years,
benefiting firms in this area. This is due
to forecast increases in demand from
biotechnology firms and pharmaceutical
product manufacturers for patents to
protect newly developed products, and
will be supported by rising private
research and development expenditure.
enterprises is expected to increase over

the next five years. While industry firms
are anticipated to incorporate
alternative billing arrangements in line
with client expectations, some changes
to billing arrangements, like lifting bans
on contingency fees, are unlikely. Most
firms are anticipated to retain the
billable hour as their primary charging
method due to its extensive use as a
performance measure in the industry.
Significant opportunities are expected
to exist in areas of legal services beyond
commercial law over the next five years.
For example, large law firms engaged in
areas of law like personal injury are
expected to grow, despite the projected
decline in workplace and personal
injury claims. This is because large
firms such as Shine Lawyers benefit
from their ability to increase their work
volumes by using advertising to reach
consumers who may not have
considered legal services as an option.
This has assisted these firms no win,
no fee model, which contrasts with the
commercial legal sphere, where firms
are competing for a limited quantity of
work that tends to fluctuate in line with
business activity.
The industrys transactional
work is expected to rebound

over the next five years
Demand from the property market,
one of the industrys major downstream
markets, is forecast to decline over the
next five years, due to the tightening of
bank lending to property investors, who
have been substantial drivers of
housing market activity over the past
five years. In addition, although
forecast to remain at historically low
levels, interest rates are projected to
increase over the next five years. This
increase may discourage some
10
Demand continued
individuals from taking out mortgages

to purchase houses. These factors are
anticipated to reduce the number of
housing transfers over the next five

years, constraining demand for
property-related legal services.
Profit
Industry profit margins are forecast to

improve slightly over the next five years,
on the back of improved cost
management. Larger industry firms are
expected to poach partners from rivals to
leverage their expertise and networks,
maximising returns from their profitable
segments. Despite this, profit growth is
expected to be constrained over the next
five years, as clients continue to demand
better value for money, and increasing
competition from smaller players puts
downward pressure on prices.
Despite industry players continued
focus on cost reductions, industry wage
costs are projected to rise faster than
revenue over the next five years. This is
expected to be the result of firms

attempting to retain experienced staff who
might be poached by other law firms or
external competitors, such as the big four
accounting firms. To offset rising wage
costs, industry firms are also expected to
increasingly offshore low-level legal work
to reduce their staff-related costs. This is
projected to constrain industry
employment growth. Offshored work
typically involves basic legal tasks that
graduates and entry-level lawyers
traditionally completed. This is causing
concern among current law students, who
are anticipated to compete for a smaller
number of clerk and graduate positions
over the next five years.
11
Life Cycle Stage
Industry value added is growing more

slowly than the overall economy
Firms have focused on improving operating
efficiencies as growth has slowed
% Growth in share of economy
A period of change is expected as mergers and

acquisitions within the industry increase
20
Maturity
Quality Growth
Company
consolidation;
level of economic
importance stable
High growth in economic

importance; weaker companies
close down; developed
technology and markets
15
Key Features of a Mature Industry

Revenue grows at same pace as economy
Company numbers stabilise; M&A stage
Established technology & processes
Total market acceptance of product & brand
Rationalisation of low margin products & brands
10
Quantity Growth
Office Property Operators
Custody, Trustee
and Stock Exchange
Services
Many new companies;

minor growth in economic
importance; substantial
technology change
Legal Services
Construction
Real Estate Services
Mining
Decline
-5
Shrinking economic
importance
-10
-10
-5
10
15
20
% Growth in number of establishments

12
Industry Life Cycle

This
industry
is M
ature
The Legal Services industry is in the

mature stage of its economic life cycle,
characterised by slowing growth as
market saturation is reached, rising
merger and acquisition activity,
improving operating efficiencies and
wholehearted market acceptance of
products and services. Industry value
added, a measure of the industrys
contribution to the overall economy, is
projected to increase by an annualised
2.5% over the 10 years through 2020-21.
This is a slight underperformance relative
to GDP, which is forecast to grow by an
annualised of 2.6% over the same period.
Operators rely on activity in a range of
downstream markets, particularly the
finance and insurance sector. As such, the
performance of legal services providers is
likely to follow economic growth.
Over the past five years, the industrys
largest players have become increasingly
affiliated with global brands through
either merger or partnership

arrangements. These firms looked to enter
new global markets to generate growth, as
demand from Australia slowed. Industry
firms, such as Slater & Gordon, have also
acquired smaller domestic players in
pursuit of growth. However, profit
margins have remained relatively strong,
as firms restructured to reduce costs.
Industry revenue is forecast to grow
over the next five years, with
transactional work, such as mergers and
acquisitions, expected to recover as
businesses become more confident.
However, price pressures are anticipated
to continue to challenge firms. Niche and
speciality areas of law are expected to
continue to be successful, particularly as
companies look for specialised assistance
to grow their businesses cost-effectively.
This is anticipated to cause the number of
industry establishments to rise steadily
over the next five years.
13
Products & Markets
Supply Chain | Products & Services | Demand Determinants

Major Markets | International Trade | Business Locations
Supply Chain
KEY BUYING INDUSTRIES

B
Mining in Australia
Firms in this division require legal services for various acquisitions and environmental
compliance issues.
Construction in Australia
Firms in this division may require legal services for the transfer of various titles and also for
various permits.
J5800
Telecommunications Services in Australia

Firms in this division require legal services for regulatory purposes.
K6200
Finance in Australia
Firms in this sector require legal services for contracts relating to debt issues, capital raisings
and for financial transactions, mergers and acquisitions.
M6900
Professional Services in Australia

Firms in this division require a wide range of legal services including writing up contracts and
title transfers.
KEY SELLING INDUSTRIES
Products & Services
J5800
Telecommunications Services in Australia

Telecommunication services are vital to ensure that firms can both contact and be contacted
by clients and other professionals.
L6712a
Office Property Operators in Australia

Legal service providers often rent office space for themselves and employees.
M6931
Legal Services in Australia

Businesses and individuals use lawyers and patent attorneys to trade intellectual property.
M6932
Accounting Services in Australia

Legal service providers use accountants for auditing clients and their own finances.
M6950
Market Research and Statistical Services in Australia

Firms use statistical agencies to build information for cases and understand markets.
The industry provides a variety of legal

services. Small law firms and sole
proprietors generally specialise in one
service segment, as they do not have the
scale to provide a wider range of services.
The largest segments are commercial law,
personal legal services and property law.
Commercial law services include the legal
advice provided to businesses, much of
which relates to major corporate
transactions, such as mergers and
acquisitions, IPOs, financing methods,
taxation solutions and advice on
tendering and bid processes. Demand for
these services is heavily affected by the
business cycle, level of investment, and
corporate activity.
Many of the top-tier law firms generate
high fees by working on complex
specialised deals in commercial areas.

Profit margins in this segment are often
higher than other segments. The more
complex deals can involve cross-border
transactions, which limit the available
market that can service the specific needs
of clients. The commercial law services
segment has increased only slightly as a
share of industry revenue over the past
five years, as growth in merger and
acquisition activity, IPOs and private
equity buyouts has slowed.
Property law services refer to property
conveyancing and other property-related
work. Small firms account for the majority
of this segment, and handle the sale of
households and small businesses to a
third party. This segment is affected by the
strength of the property market, which is
14
Products & Markets
Products & Services

continued
affected by the general performance of the

economy, interest rates and housing
affordability. Historically low interest
rates have boosted the number of housing
transfers over the past five years, causing
this segment to rise as a portion of
industry revenue over the period.
While property owners or investors
account for a large client portion of
this segment, property law specialists
also advise property developers on
various aspects of the business, from
the structuring of the finance to the
sale of the property. Demand from
property developers is expected to
have increased over the past five years,
due to a rise in the number of new
dwelling commencements.
Personal legal services include work
related to wills and estates, personal
injury, workers compensation and family
law. Due to the low profit margins of these
services, small firms primarily deal with
personal legal services. However, large
firms such as Slater & Gordon, Shine
Lawyers and Maurice Blackburn have
grown their personal legal services
offerings, both organically and from
acquisitions of smaller players. This
segment has declined as a share of
industry revenue over the past five years,
due to a decline in personal injury and
divorce rates.
Industrial and workplace

relations services
Since the implementation of the Fair
Work Act in 2009, employers have been
grappling with good faith bargaining,
industrial action and permitted
agreements. In 2011-12, workplace
relations lawyers were kept busy with
major restructuring projects and
numerous industrial disputes ranging
from airline carriers and teachers unions,
to infrastructure and building projects.
The potential review of industrial
relations laws in Queensland, and the
Productivity Commissions investigation
into Australias Workplace Relations
Framework are expected to boost demand
for legal services in this area. This
segment has grown as a proportion of
revenue over the past five years.
Intellectual property refers to legal
protection, such as patents, copyrights
and trademarks, over valuable
intangibles including ideas,
inventions, words, trade secrets,
discoveries and designs. This segment
includes a range of clients across
different industries including
pharmaceutical and information
technology companies, fashion houses,
and food and beverage manufacturers.
Businesses have placed great emphasis
on protecting and enforcing their
Products and services segmentation (2015-16)
4.1%
5.3%
Community
legal services
Industrial and workplace relations

services
4.1%
28.6%
15.6%
16.3%
Total $22.6bn
1.9%
Criminal law
services
24.1%
Administrative, constitutional
and other law services
15
Products & Markets
Products & Services

continued
rights to intellectual property over the

past five years, causing the segment to
grow as a proportion of revenue over
the period.
Community legal services
The community legal services segment
includes legal aid authorities and
community legal centres. There are
eight legal aid authorities in Australia,
one in each state and territory. Legal aid
provides representation for about
200,000 people in courts or tribunals
annually. Legal aid provide funds
allowing people access to legal
representation, while community legal
centres provide legal advice and
services. About 200 community legal
centres operate throughout Australia,
providing free legal services to the
public, with a focus on providing
services to disadvantaged individuals.
Over 90% of funding for legal aid and
community legal centres comes from
state and federal governments, with a
small proportion derived from other
sources, such as philanthropic
organisations. This segment has
declined as a share of industry revenue
over the past five years, due to Federal
Government funding cuts.
Demand
Determinants
Demand for legal services is derived from

businesses, governments and households.
These markets use a variety of services,
relating to commercial, property, family
law, wills and probate, criminal law,
intellectual property and industrial
relations matters.
Demand for commercial legal services
depends on the general economic and
business environment. For example,
IPOs and mergers and acquisitions tend
to occur more frequently in periods of
strong economic growth, resulting in
greater demand for legal services in
these areas. In contrast, restructuring,
insolvency and bankruptcy tend to affect
businesses during an economic
downturn. These countercyclical
segments of the industry partly insulate
Criminal law services

Criminal law services account for a
higher proportion of revenue for
barristers than for other legal
professionals. The high proportion of
criminal work for barristers is largely
attributable to their involvement in cases
where advocacy before a court is
required. Overall, this segment has
declined slightly as a share of industry
revenue over the past five years, due to a
reduction in criminal activity.
Administrative, constitutional
and other law services
This segment includes work related to
government administration, the
constitution, tribunals and other fields of
law. Clients in this area consist of
corporate clients dealing with
government departments and agencies.
Some larger industry firms also provide
advisory services to government
departments, agencies and statutory
authorities regarding the formation and
implementation of government
regulations. This segment has declined
slightly as a share of revenue over the
past five years as government
departments have increasingly used
in-house legal teams.
it against sharp declines in revenue

during periods of economic decline.
Demand for other types of legal
services, such as criminal and family
law, tends to be less sensitive to
economic conditions, as it is influenced
by other factors, such as population
growth and divorce rates.
For law firms with an international
presence, the state of the global economy
and performance of the national
economies in which they have offices has
an effect on demand. Strong economic
growth tends to correlate with higher IPO
and merger and acquisition activity,
including cross-border deals, which
increases demand for legal services.
Changes in legislation typically
results in increased demand for
16
Products & Markets
Demand
Determinants
continued
industry services, as businesses seek

advice to ensure their compliance with
new laws. Legislation considered to be
in a reform agenda includes anti-money
laundering, workplace, competition,

insolvency, freedom of information,
human rights, discrimination and
information technology laws.
Major Markets
Corporate and business clients account for

the majority of the market for legal
services. Legal services are used in some
form by businesses across all industries for
matters such as contracts, transactions,
protecting intellectual property rights,
industrial relations and complying with
legislation. Industries in which these
activities and issues are particularly
prevalent are the biggest spenders on legal
services. In addition, large commercially
focused legal firms tend to provide their
services to other large entities, while
smaller players, such as sole proprietors
are more likely to provide their services to
small businesses or households.
Property operators and developers

Spending on legal services by property
operators and developers tends to relate
to the transfer of property ownership. In
addition, some of the larger players,
including listed property trusts and
managed property funds, tend to be
involved in complex transactions such as
IPOs, acquisitions and project finance,
along with complicated commercial
lease contracts. This market has
increased as a share of revenue over the
past five years, due to a rise in the
number of housing transfers.
Households
Households use legal services in several
ways including in property transactions;
in family matters such as divorce,
custody, wills and estates; in personal
injury claims; and in defence of criminal
charges. This segment has shown slight
growth over the past five years, mainly
due to rising demand for wills and estates
from an ageing population. This growth
has been constrained by a declining
divorce rate and a fall in the level of
criminal activity.
Banking, finance and insurance firms

Companies in banking, finance and
insurance tend to offer highly complex
products and are involved in a variety of
complex transactions. The sector is also
highly regulated, driving demand for
legal services related to compliance with
regulations. Demand from the financial
services segment has fluctuated over the
past five years, but has increased
slightly overall.
Major market segmentation (2015-16)
6.7%
5.1%
Energy and resources

firms
Health, pharmaceutical
and biotechnology firms
8.1%
23.2%
Banking, finance and insurance firms
IT and communications
firms
12.7%
Property operators
and developers
16.5%
Other clients
13.8%
Governments and regulators
Total $22.6bn
13.9%
Households
17
Products & Markets
Major Markets
continued
International Trade
Governments and regulators

Government agencies and departments
and other regulatory authorities seek
advice from law firms regarding the
creation and implementation of
regulations. However, governments and
regulatory authorities tend to have inhouse legal departments that provide most
of their legal services. Advice sought from
private firms tends to be that which
requires a specific area of expertise or
analysis from a non-government
perspective. Government expenditure on
external legal services providers has
declined slightly over the past five years,
causing this market to fall as a share of
industry revenue. This is due to an
increase in the use of in-house legal advice.
entrepreneurial markets such as the

United States. These firms also use legal
services for commercial transactions such
as bids and tenders for major
telecommunications projects and
outsourcing. This segments share of
revenue has increased over the past five
years, in line with a rise in trademark and
patent applications.
IT, communications, health,

pharmaceutical and biotechnology firms
Industries that have a high level of
innovation in technology and products,
such as IT, communications,
pharmaceuticals and biotechnology, are
strong spenders on legal services in the
establishment and protection of
intellectual property rights. In IT and
communications, the rise of electronic
media, particularly online, has driven the
need for intellectual property related
legal services spending. However,
intellectual property work comprises a
smaller share of legal services revenue in
Australia than in more established
Energy and resources firms

and other clients
Energy and resource businesses are
increasingly driving growth for the
industry, as activities are typically high
value in a variety of areas like mine
acquisitions, infrastructure construction
and development, capital raising, or
merger and acquisition work. These
events have spurred legal firms expansion
in the mining states of Queensland and
Western Australia. This market has grown
over the past five years, due to the high
relative growth in the resources sector,
although this growth has been slowed by
recent declines in commodity prices.
Other clients include businesses in
several other industries such as those
engaged in manufacturing, agriculture
and transport services. These firms
typically engage legal advice for
conveyancing and other corporate
transactions. Other clients are expected
to have remained relatively stable as a
share of revenue over the past five years.
The Legal Service industry has a low

level of international trade as industry
participants, the bulk of which are sole
proprietors and small firms, primarily
service the domestic market. However,
legal professionals are often involved in
the provision of legal services to
overseas markets, and Australian
businesses often engage the services of

overseas legal professionals. Foreign
legal services typically come from the
United States and United Kingdom as
firms in these countries seek increased
exposure to the Asia-Pacific region. This
trend is expected to remain steady over
the next five years.
18
Products & Markets

Business Locations 2015-16
NT
0.6
QLD
16.2
WA
7.7
SA
6.0
NSW
40.0
ACT
1.3
VIC
27.2
Enterprises (%)
Cold Zone (<10)
<25
<50
Hot Zone (<100)
Not applicable
TAS
1.0
19
Products & Markets
Distribution of enterprises vs. population

50
40
30
20
10
WA
VIC
TAS
SA
QLD
NT
NSW
0
ACT
The Legal Services industry is dispersed

broadly in line with business activity
and population in each state and
territory. This is because industry
participants provide services to
businesses and individuals across all
sectors of the economy. As such, New
South Wales, Victoria and Queensland
contain more than 80% of industry
enterprises. New South Wales has the
largest proportion of industry
enterprises because a major portion of
large businesses, financial institutions
locate their head offices in the state.
Legal firms typically locate close to their
clients and the courts, as this makes
facilitating client meetings and
attending court sessions easier. The
number of enterprises in each state has
risen over the past five years, as the
population of major cities has grown.
The resources boom has led to a
substantial increase in the number of
legal professionals working in Western
Australia and many firms have had to
entice staff from the east coast to fill
Percentage
Business Locations
Enterprises
Population
vacant positions. Despite this, Western

Australia is under-represented in terms
of population. The remaining states and
territories account for 9.0% of
enterprises, largely in line with
population distribution.
20
Competitive Landscape
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks

Basis of Competition | Barriers to Entry | Industry Globalisation
Market Share
Concentration
Level
Concentration
in
this industry is L ow
Key Success Factors

IBISWorld
identifies
250 Key Success
Factors for a
business. The most
important for this
industry are:
The Legal Services industry exhibits a low

level of concentration as it is
predominantly composed of small firms.
Over half of all firms are sole practitioners
or partnerships not employing any
additional non-partner staff. These firms
typically provide legal services to small
businesses and households. The four
largest firms, Herbert Smith Freehills,
Allens, Minter Ellison and Clayton Utz,
are expected to account for less than
10.0% of industry revenue. Unlike smaller
players, many top-tier firms often focus
on providing their services to large
companies, advising on a range of legal
matters and high value business, like
international mergers.
The key to a significant share in a
saturated market environment is niche
practice and marketing. Many clients
prefer to engage with a locally based
practitioner, but given such high
competition within regions,
specialisation is still key to strong
business performance. This allows firms
to build on their reputation in a specific
practise area, a key success factor for
firms in the industry. Concentration in
the industry has increased over the past
five years, with some firms like Slater &
Gordon, aggressively acquiring small
firms in pursuit of growth.
Having a good reputation

Firms that maintain a reputation for
providing high quality advice and service
are more likely to retain clients.
outcomes for clients and avoid

professional negligence.
Access to quality personnel

Law firms need staff that are highly
knowledgeable in different areas of law.
Having a maximum ratio of about one
partner to four staff is desirable. Firms
need to offer competitive remuneration
to attract and retain quality partners and
staff.
Provision of development
programs for personnel
Continuing professional development is a
requirement for lawyers to retain their
practicing certificates. Legal advice needs
to be up to date to ensure the best
Cost Structure
Benchmarks
Wages account for the largest segment of

revenue for the Legal Services industry.
This is due to the high level of skill and
knowledge needed by lawyers and other
industry employees to provide the
industrys value-added services. Cost
structures vary considerably among
industry firms, with smaller players
typically spending less on rent and
depreciation costs.
Ability to effectively manage risk

Firms must have adequate professional
indemnity insurance coverage.
Well-developed internal processes
Firms must have professional
management practise systems that
include cashflow management, the
introduction of appropriate time
management systems and a job costing
system.
Access to niche markets
Specialising in growing areas of the law is
more cost-efficient and ensures better
quality of performance than offering
services covering all areas of the law.
Profit
Sole proprietors and small partnerships,
which make up the majority of industry
firms, traditionally earn smaller profit
margins than larger firms. This is because
sole proprietors generally provide legal
services that are lower value compared
with larger firms, which typically advise
on complex and lucrative corporate
transactions. Sole proprietors also tend
21
to draw their income from profit,

deflating their wage costs and increasing
profit. This is also the case for large firms,
where equity partners also draw
additional income from a firms profit.
Profit is expected to have grown
marginally over the past five years.
Larger firms were able to take advantage
of increased investment in resources and
energy services, which provided high
profit margins early in the period. Cost
cutting measures have also contributed to
increasing profit margins. However,
strong competition among firms, and
clients increasing demand for better
value have constrained growth.
Wages are the largest industry cost, as
lawyers and other legal professionals are
paid high salaries due to the specialised
knowledge and education required to
practise in the industry. Legal
professionals need extensive tertiary
education in law and also often undertake
postgraduate studies. Industry wages
have increased slightly as a portion of
revenue over the past five years as firms
have sought to retain staff. However,
both large and small firms have placed

downward pressure on wages in an effort
to become more cost effective, using
incentives like flexible work hours and
bonuses to keep employees while limiting
wage increases. The desire to keep wage
growth low has been driven by increased
industry competition, and pressure from
clients to get better value for services.
Rent, utilities and depreciation
Law firms typically seek inner-city
locations with large office spaces for
lawyers and support staff, as well as
space to meet with clients. In addition,
barristers require chambers, which are
usually expensive. Despite this, rent
makes up a small proportion of industry
revenue. Utilities required by legal firms
include electricity and gas. Depreciation
accounts for a minor share of industry
revenue and is mostly limited to the
replacement of administration tools such
as computers. While utilities costs are
expected to have remained stable as a
portion of industry revenue over the past
five years, rent is expected to have
Sector vs. Industry Costs

Average Costs of
all Industries in
sector (2015-16)
Industry Costs
(2015-16)
11.9
14.4
100
80
Percentage of revenue
Cost Structure
Benchmarks
continued
60
5.0
2.2
28.8
2.5
4.4
1.8
2.1
27.3
n Profit
n Rent
n Utilities
n Depreciation
n Other
n Wages
n Purchases
40
39.7
47.3
20
9.9
2.7
22
Cost Structure
Benchmarks
continued
declined as industry firms have

renegotiated contracts to reduce
overheads. In addition, depreciation is
expected to have increased as a share of
industry revenue due to firms
incorporating new technology, such as
cloud-based services, to boost employee
efficiency and client communications.
Other
Other costs for the industry include
professional indemnity insurance,
Basis of Competition
Level & Trend
ompetition
C
in
this industry is
Highand the trend
is I ncreasing
The Legal Services industry is

characterised by a high competition due to
the large number of establishments.
Industry firms generally compete on
reputation, price and the types of legal
advice they provide. Given the specialised
nature of legal services and the
qualifications required to perform them,
legal services cannot be replicated by
another business or industry unless they
employ qualified personnel. Therefore, the
industry competes with accountancy firms,
investment banks and major corporations
that have legal service departments.
Internal competition
The major basis of competition in the
industry is reputation. This is a function
of service quality, knowledge of clients
business and fee schedules. Firm prestige
and reputation have a high correlation
with firm profit margins. In general, the
more reputable a firm, the higher the fees
it is able to charge.
Major law firms invest considerable
resources in brand awareness and
reputation through corporate
sponsorship activities, pro bono work,
and promoting ethical work standards
and practices. Industry participants try
to enhance their quality of service by
hiring and retaining the best staff. Some
firms try to differentiate themselves to
attract quality staff by offering
challenging work, flexible/familyfriendly work hours, or opportunities for
further study and secondments.
Some industry participants compete on
costs for professional development

courses, marketing expenses,
telecommunications costs and travel
expenses. Purchases are a minor share
of industry revenue and include items
such as stationary. Professional
indemnity insurance is important for
industry players to ensure that they
are covered in case of claims. Other
costs have remained stable as a
portion of industry revenue over the
past five years.
price. The extent to which this basis of

competition is important largely depends
on the size of the firm and the nature of the
work. For small local firms that perform
general legal services and routine work,
price is a key basis of competition given
that households, which are often highlyprice sensitive, account for a large share of
their total revenue relative to large firms.
During periods of slow economic growth,
price becomes of greater importance as
businesses and households attempt to cut
costs. This may involve asking legal service
providers for fixed fees or finding firms
that will provide greater value.
Competition from cheaper niche and
online legal firms has increased over the
past five years, as companies have looked
to cut costs associated with legal advice.
External competition
While there is no pure external
competition for legal services, other
companies that operate in the
Professional Services sector, such as large
accounting firms, are slowly encroaching
on the services of legal firms. This is
because large accounting firms operate in
a largely saturated market. Consequently,
they are branching out into different
industries to expand their range of
services to clients and create new income
streams. Growth of in-house legal teams,
which are often cheaper than paying for
external legal advice, is also increasing
competition for industry participants. As
such, the level of competition is expected
to have risen over the past five years.
23
Barriers to Entry
Level & Trend
arriers to Entry
B
in this industry
are M
ediumand
Decreasing
Industry
Globalisation
Level & Trend
lobalisation
G
in
this industry is
Lowand the trend
is I ncreasing
Barriers to entry in the industry are

moderate and are expected to decrease
over the next five years. The main barrier
to entry is attaining a valid legal
qualification. For solicitors, in addition to
obtaining a university law degree,
candidates must undertake further
training before being admitted to
practice. This involves working as an
articled clerk or undertaking practical
legal training at a certified institute.
Despite a high level of competition, the
legal services industry is characterised by
a low level of market share concentration,
due to the presence of many small law
practices. These small firms generally
focus on local business issues. Some
complex law issues and areas require
specialist knowledge and particular scale,
in which case, the larger firms are in a
better competitive position to acquire
such work. As such, the substantial
market reputation of the large law firms
does not prevent new players entering
the industry.
The capital costs of entering the
industry are relatively low, as the
industry is labour-intensive. The NSW
Bar Association estimated that the cost of
The Legal Services industry is

characterised by a low level of globalisation
due to the large number of small firms that
focus on the domestic market.
Globalisation has increased over the past
five years, due to greater use of
information and communication
technologies between firms and large
industry players merging with overseas
entities. Growth in Asia and an
increasingly saturated Australian legal
services market are resulting in companies
branching out and performing legal
services for international clients. However,
specialist knowledge of overseas markets,
businesses and legislation is required for
firms to be successful overseas.
High growth rates in the Asia-Pacific
region are creating new opportunities for
law firms to expand their operations. To
Barriers to Entry checklist

Competition
Concentration
Life Cycle Stage
Capital Intensity
Technology Change
Regulation & Policy
Industry Assistance
High
Low
Mature
Low
Low
Heavy
Low
setting up a barrister practice is

approximately $11,050 with nearly 30.0%
of overheads related to course fees. Other
costs include basic computer equipment
and professional indemnity insurance,
which are relatively cheap.
Although there are still some legislative
(regulative and licensing) barriers to entry
into the industry, these are currently being
reduced following federal and state
government inquiries and associated
legislative reviews and amendments. The
Federal Government in association with
the states is seeking to establish an
international legal services market, with
the majority of major players in the
industry now having offshore operations.
access this market, many overseas law

firms have increased their links to
Australian firms. For example, the firm
previously known as Mallesons merged
with Chinese company King & Wood PRC
to create King & Wood Mallesons in
2012, while Blake Dawson integrated its
Asian practices with those of UK-based
firm Ashurst, becoming Ashurst Australia
in late 2013. Firms have also sought to
tap other overseas markets. Slater &
Gordon has aggressively acquired several
UK legal firms in the personal legal
service segment over the past five years.
Industry globalisation is expected to rise
over the next five years, as agreements
such as the China-Australia Free Trade
Agreement expandthe scope for
Australian firms towork and share
knowledge with Chinese firms.
24
Major Companies
There are no major players in this industry | Other
Other Companies
The industry is characterised by the

major commercial law firms. Revenue
figures for these firms are difficult to
determine as most have a partnership
structure. This has been further
complicated by some firms entering into
global partnerships that pool revenue and
profit across countries. In contrast, Slater
& Gordon, which specialises in personal
legal services, has adopted an
incorporated structure to gain access to
external capital to fund acquisitions.
In addition, while there are many
well-established players operating in the
industry, the industry is highly
fragmented. Most of the industry is made
up of small firms and sole proprietors
that provide legal services to individuals
and small- to medium-sized enterprises.
These smaller players typically provide
personal legal services, property law
services, criminal law services and
community legal services.
Herbert Smith Freehills
Estimated market share: 2.6%

Herbert Smith Freehills is an Australian
partnership that operates as an
international law firm. The company was
established in October 2012, after a full
equity merger between UK law firm
Herbert Smith and prominent Australian
firm Freehills. The merger made the new
entity the eighth-largest law firm in the
world, with about 2,800 lawyers and 460
partners. Prior to the merger, Freehills
was one of Australias largest legal firms,
with an estimated 1,000 lawyers and 218
partners in Australia and Singapore.
Most of the companys revenue is
generated from energy and resources,
litigation, regulatory work and
employment law. In 2013-14, Herbert
Smith Freehills benefited from a rise in
the number of IPOs, working on the Pact
Group and Veda offerings. Over the next
five years, the firm is expected to grow as
it attracts more high-profile contracts.
However, the company is expected to lose
some market share from small and
medium-sized business clients, which will
likely be deterred by the companys
higher rates.
Allens

Allens has 10 offices throughout Australia,
South-East Asia, China and Mongolia. The
firms international offices are located in
Ulaanbaatar, Hanoi, Ho Chi Minh City,
Jakarta, Port Moresby and Singapore.
Allens is a product of a 2012 alliance
between Allens Arthur Robinson and
UK-based Linklaters. This alliance means
that both companies remain independent
of each other with respect to profit sharing.
However, the two firms are expected to use
the alliance to establish joint ventures in
Asia, enabling clients to access knowledge
and expertise from both firms.
Allens also has a long history of
working with the government and has
been involved in several pioneering
public sector projects. Advice to
government has typically included
procedures and strategies for ensuring
adherence to probity requirements, and
minimising commercial and financial
risks to government.
Minter Ellison

Minter Ellison is one of the biggest law
firms in Australia by partners, with about
200 Australian partners as at July 2013.
Minter Ellison employs 1,629 staff and
has 15 offices around the globe, including
in New Zealand, the United Kingdom, the
United States, China and Indonesia. The
company is one of the last large
Australian firms that has not merged
with a foreign company, instead choosing
to pursue growth domestically.
The companys revenue dropped by
20.8% in 2010-11, due to US-based firm
Squire Sanders purchasing the Perth
office of Minter Ellison and hiring 80
lawyers (including 14 partners) from the
company. Despite efforts to rebuild,
revenue fell by 0.8% in 2012-13 due to a
general slowdown in demand for
corporate legal services. Total revenue
has stabilised in the three years through
2015-16, as the firm has diversified its
services. For example, in April 2016,
Minter Ellison launched Minter Ellison
Flex (MEF). MEF consists of a team of
25
Major Companies
Other Companies
continued
contract lawyers that can work

temporarily in-house with clients on
specific projects.
Clayton Utz

Clayton Utz is a major law firm in
Australia, with 1,289 employees and the
largest pro bono practice in the country.
Unlike most of its large rivals, Clayton
Utz has not revealed any merger plans. It
is one of the last remaining national
independent firms. In the two years
through 2014-15, the firm shed
employees and partners as it struggled to
find growth following the global financial
crisis. The company is expected to
continue to face downward pricing
pressure to maintain success in key
growing markets such as intellectual
property and information technology.
Clayton Utz has also been involved in
share trades for private equity firms,
most recently for Ironbridge Capitals
holding in ASX-listed Eclipx Group.
Ashurst Australia

Ashurst Australia is the product of a
merger between Australian firm Blake
Dawson and UK firm Ashurst. The merger
was precipitated by Ashursts decision to
shift its focus from Europe to Asia, and by
Blake Dawsons desire to be part of a
global brand. In early 2012, Blake Dawson
started trading under the Ashurst brand.
This was converted into a full financial
merger in November 2013. The firm
practices across various aspects of law
including commercial arbitration and
litigation, construction, discrimination,
equity capital markets and financial
services, food law, health, immigration,
intellectual property, media, native title,
property and tourism, trade and transport.
King & Wood Mallesons

Dating back to 1832, King & Wood
Mallesons has become a top-tier law firm
in Australia. Prior to March 2012, the
company (then known as Mallesons
Stephen Jaques) was an Australia-based
firm with offices in Hong Kong, Beijing,

London and Shanghai and an associate
office in Port Moresby. The company now
operates in the United States and the
United Kingdom as well. Following a full
merger with China-based King & Wood
PRC Lawyers, the company operates
under a Swiss Verein structure. This
means that the firm is not registered as a
single legal entity, and instead operates
with three financially separate
partnerships based in Australia, Hong
Kong and London.
Over the past five years, King & Wood
Mallesons has suffered from the same poor
demand conditions affecting all firms
providing commercial legal services, due in
part to weak domestic business confidence
and decreased spending by businesses. As
a result, the firms industry-related
revenue is expected to have declined over
the five years through 2015-16.
Slater & Gordon Ltd

Unlike many of its competitors, Slater &
Gordon Ltd is a publicly listed law firm
that began trading on the ASX in May
2007. While the company is best known
for its legal services relating to personal
injury and class action lawsuits, it also
practises commercial litigation, wills and
estates, property law and family law. The
company derives about half of its revenue
from its Australian operations, with the
remainder earned in the UK market,
which it entered in 2012.
Over the past five years, Slater &
Gordon has had strong revenue growth,
largely fuelled by acquisitions. Two notable
purchases were completed in late October
2014, with the company acquiring Nowicki
Carbone, a personal injury law firm based
in Victoria, and Queensland-based Schultz
Toomey OBrien, which focuses on
consumer law. Globally, the company has
been the subject of controversy, following
a downgrade in its earnings guidance in
late 2015, primarily due to an expected
underperformance in the companys UK
operations. The company is also currently
being investigated by ASIC regarding
alleged bookkeeping errors.
Legal Services in AustraliaJune 2016 26
Operating Conditions
Capital Intensity | Technology & Systems | Revenue Volatility

Regulation & Policy | Industry Assistance
Capital Intensity
The Legal Services industry has a low

level of capital intensity. IBISWorld
estimates that for every dollar spent on
wages, the industry invests $0.04 in
capital. The industry is labour, knowledge
and skills intensive, with wages being the
industrys primary expense. Lawyers
require a high number of support staff for
research, filing, documenting and other
duties. The industrys minimal capital
expenditure includes computer systems,
legal databases and the internet. These
investments have improved employee
productivity, but technological
advancements have not overcome the
need for manual labour required to deal
with clients, research problems, design
solutions, or overcome the significant
Level
The level
of capital
intensity is L ow
Capital intensity
Capital units per labour unit

0.5
0.4
0.3
0.2
0.1
0.0
Economy
Professional,
Scientific and
Technical
Services
Dotted line shows a high
level of capital intensity
Legal Services
amount of administrative tasks required

to run a law firm.
Tools of the Trade: Growth Strategies for Success

Investment Economy
Recreation, Personal Services,

Health and Education. Firms
benefit from personal wealth so
stable macroeconomic conditions
are imperative. Brand awareness
and niche labour skills are key to
product differentiation.
Information, Communications,
Mining, Finance and Real
Estate. To increase revenue
firms need superior debt
management, a stable
macroeconomic environment
and a sound investment plan.
Legal
Services
Traditional Service Economy

Wholesale and Retail. Reliant
on labour rather than capital
to sell goods. Functions cannot
be outsourced therefore firms
must use new technology
or improve staff training to
increase revenue growth.
Capital Intensive
Labour Intensive
New Age Economy
Office Property Operators

Custody, Trustee and Stock Exchange Services
Real Estate Services
Construction
Old Economy
Mining
Change in Share of the Economy
Agriculture and Manufacturing.

Traded goods can be produced
using cheap labour abroad.
To expand firms must merge
or acquire others to exploit
economies of scale, or specialise
in niche, high-value products.
Technology & Systems The Legal Services industry exhibits a

of
Technology
Change is L ow
Revenue Volatility
Level
The level
of
Volatility is L ow
conferencing linking solicitors and

other law firm employees to clients. For
some major and extended trials, law
firms have established systems that
allow for the videoconferencing of
external parties, together with
electronic documents, evidence and real
time transcripts. Courts also provide
online retrieval of documents and
access to information.
Revenue volatility for the Legal Services

industry has returned to a low level, after
several years of moderate volatility
caused by the lingering effects of the
global financial crisis. The onset of the
crisis resulted in reduced demand for
transactional legal services while
businesses looked to save money. This
causes clients to re-evaluate their
spending on legal services and switch
from expensive top-tier companies to
cheaper, more specialised mid-tier or

small firms. The industry is partly
protected from revenue volatility due to
its broad client base, which covers the
majority of the economy. In addition,
large firms are also able to leverage their
range of expertise during economic
downturns and take advantage of
increased insolvency and restructuring
work. Over the next five years, industry
volatility is expected to remain low.
A higher level of revenue

volatility implies greater
industry risk. Volatility can
negatively affect long-term
strategic decisions, such as
the time frame for capital
investment.
When a firm makes poor
investment decisions it
may face underutilised
capacity if demand
suddenly falls, or capacity
constraints if it rises
quickly.
Volatility vs Growth
1000
Revenue volatility* (%)
Level
The level
low level of technology change. This is

due to the high level of face-to-face
contact needed, and the specialised
service offerings provided. While the
past five years have shown relatively
minor changes in technology compared
with the rest of the economy, there have
been some notable developments. This
includes online databases or video
Hazardous
Rollercoaster
100
10
Legal Services
1
0.1
Stagnant
30
10
Blue Chip
10
30
50
70
Five year annualised revenue growth (%)

* Axis is in logarithmic scale
Regulation & Policy

Level & Trend
he level of
T
Regulation is
Heavyand the
trend is S
teady
The Legal Services industry exhibits a

heavy level of regulation. While each
state and territory has several
organisations responsible for the
regulation of legal professionals within
their jurisdictions, the Law Council of
Australia is the main body representing
the legal profession in Australia. In
March 2002, a review was conducted
examining the regulation of laws through

the National Practice Model Laws
Project. Previously, lawyers were
required to be formally admitted so that
they were able to practice in a state other
than where they were admitted. The
states and territories now recognise and
allow lawyers to practice without being
formally admitted in that state. This was
Regulation & Policy

continued
considered a key step from a stateregulated industry to a nationally

regulated industry, which would result in
the seamless delivery of services
throughout the country.
Over the past five years, the industry
has increasingly pursued the
standardisation of regulations affecting
legal professionals. The implementation
of the Legal Profession Uniform Law in
Victoria and New South Wales in July
2015 is one such step. This law
standardises continuing professional
development requirements (which must
be met each year for legal professionals
to continue practising), billing
arrangements, practising certificate types
and conditions and complaints handling
processes, supervised by an interjurisdictional Legal Services Council.
Day-to-day regulation will remain with
independent state bodies. These reforms
are expected to benefit legal services
providers that operate across state
borders, as they will streamline
compliance requirements. However, the
reforms are expected to have less effect
for small firms and sole proprietors as
they typically operate in only one state.
As a result, the overall trend is expected
to be steady.
Fee restrictions
Fees charged for legal work are governed
by statutory or other official fee scales. In
most cases, legal fees are negotiated
between the lawyer and client. However,
any person who is liable to pay a lawyers
fee can submit it to a court official for
examination and the fee can be amended.
The responsibility for fee setting
various committees and bodies in each
state. Responsible bodies include the
Prices Commissioner in South Australia,
the Legal Fees and Costs Board in New
South Wales, and in federal matters, the
Federal Costs Advisory Committee. These
committees and boards tend to have legal
and non-legal members. The scale of fees
is normally adjusted every six months.
Legal aid cases, however, have fixed

maximum fees.
When setting fees, the board or law
firm usually takes into account the
complexity of the matter, the degree of
difficulty and the time likely to be
involved. Also considered are the
importance of the matter to the client,
the specialised knowledge and
responsibility involved, the number and
importance of documents prepared or
perused, and the amount or value of any
money or property involved. Despite
these fee restrictions, clients have
increasingly demanded greater fee
transparency over the past five years.
This has led to some players, such as
small online legal services provider
LegalVision, to offer fixed-fee services as
opposed to the traditional billable hour.
Incorporated law firms
Since each state and territorys revision
or introduction of its legal profession act
in 2004, firms may incorporate. This
enables them to potentially list on the
ASX. One key advantage of this is access
to new sources of capital and the ability
to gain a national practice certificate,
which is of benefit to larger firms. Slater
and Gordon became Australias first
publicly listed law firm in mid-2007,
following regulatory changes allowing
non-lawyers to own equity in a law firm.
Slater and Gordon cited access to capital
as a key reason why it listed on the
securities exchange.
Additionally, under current taxation
regulations, incorporation can trigger a
significant capital gains tax liability. This
issue was highlighted by the January
2010 Deacons and Norton Rose merger,
for which Deacons required a limited
liability structure to fully financially
integrate with Norton Rose. The
company has thus far chosen not to
pursue a limited liability structure via
incorporation due to the risk of incurring
the tax. Other firms have also cited the
tax issue as a barrier to incorporation.
Industry Assistance
Level & Trend
he level of
T
Industry Assistance
is L owand the
trend is S
teady
The level of assistance provided to the

Legal Services industry is low and is
expected to remain steady over the next
five years. Overall, the barriers to entry
presented by the state-based regulatory
regime, particularly across borders, are
gradually being reduced under national
competition reforms and as a result of
state-government inquiries and
legislative changes. Amendments to legal
profession statutes and other relevant
legislation by each state and territory
have allowed for a liberalisation of
conditions, under which foreign lawyers
can practice in Australia.
All lawyers pay a registration fee and
a contribution towards the Solicitors
Guarantee Fund, which protects clients
from losses because of defalcations on
trust account funds by lawyers. There is
a ceiling on this fund, which is agreed to
by the Law Society and the responsible
minister. If this ceiling is reached and
exceeded, 50.0% of the surplus is given
to the Legal Aid Commission and the
remaining 50.0% is paid to the Legal
Aid Commission (legal aid fund), the
Law Society (for law reform, research
and education) and a body that is

charged by Parliament to conduct law
reform, which essentially relates to the
Law Reform Commission.
Since losing their regulatory power
following the changes to the legal
profession acts in several states, legal
industry associations have taken more of
an assistance role. These associations
include the Law Institute of Victoria and
the Law Societies of New South Wales,
Tasmania, Northern Territory, South
Australia, the Australian Capital Territory
and Western Australia and the
Queensland Law Society. The purpose of
these associations is now to lobby on
issues of law reform, inform members of
changes within the legal profession and
act as a medium between the legal service
industries and the wider community.
Each state and territory also has a
professional association for barristers.
The bar associations provide similar
services to their members as the law
societies. Supreme Courts look to bar
associations to enforce standards of
conduct, promulgate rules and initiate
disciplinary proceedings for misconduct.
30
Key Statistics
Industry Data
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Sector Rank
Economy Rank
Revenue
($m)
21,787.8
20,807.1
19,267.2
19,725.6
20,197.1
20,816.3
20,831.6
21,851.6
22,141.1
22,569.5
22,965.7
23,551.0
23,873.3
24,304.0
24,790.2
4/41
60/859
Annual Change
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Sector Rank
Economy Rank
Revenue
(%)
-4.5
-7.4
2.4
2.4
3.1
0.1
4.9
1.3
1.9
1.8
2.5
1.4
1.8
2.0
27/41
444/859
Industry
Value Added
($m)
Establishments Enterprises
12,673.5
22,993
17,963
12,148.5
23,178
18,105
12,297.9
23,069
18,023
12,214.5
23,448
18,463
12,461.1
23,946
18,781
12,781.8
24,263
18,955
12,758.2
24,316
18,924
13,329.3
25,034
19,483
13,796.0
25,722
19,863
14,320.9
25,788
19,913
14,645.9
26,069
20,132
15,004.4
26,695
20,457
15,390.0
27,096
20,766
15,712.2
27,829
21,153
16,016.6
28,134
21,364
4/41
5/41
5/41
42/858
47/860
45/859
Industry
Value Added Establishments Enterprises
(%)
(%)
(%)
-4.1
0.8
0.8
1.2
-0.5
-0.5
-0.7
1.6
2.4
2.0
2.1
1.7
2.6
1.3
0.9
-0.2
0.2
-0.2
4.5
3.0
3.0
3.5
2.7
2.0
3.8
0.3
0.3
2.3
1.1
1.1
2.4
2.4
1.6
2.6
1.5
1.5
2.1
2.7
1.9
1.9
1.1
1.0
18/41
22/41
24/41
345/858
357/860
342/859
Key Ratios
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21
Sector Rank
Economy Rank
IVA/Revenue
(%)
58.17
58.39
63.83
61.92
61.70
61.40
61.24
61.00
62.31
63.45
63.77
63.71
64.47
64.65
64.61
18/41
92/858
Imports/Demand Exports/Revenue
(%)
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Figures are in inflation-adjusted 2016 dollars. Rank refers to 2016 data.
Employment
97,467
99,696
97,918
96,645
97,418
97,515
97,125
100,243
103,005
105,476
107,060
108,573
110,975
112,491
113,841
4/41
47/857
Employment
(%)
2.3
-1.8
-1.3
0.8
0.1
-0.4
3.2
2.8
2.4
1.5
1.4
2.2
1.4
1.2
16/41
222/857
Revenue per
Employee
($000)
223.54
208.71
196.77
204.10
207.32
213.47
214.48
217.99
214.95
213.98
214.51
216.91
215.12
216.05
217.76
15/41
572/857
Exports
---------------N/A
N/A
Exports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages/Revenue
(%)
42.40
42.80
48.43
46.71
46.66
46.14
45.74
45.27
46.34
47.25
47.56
47.48
48.22
48.38
48.33
16/41
71/858
Imports
---------------N/A
N/A
Imports
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Employees
per Est.
4.24
4.30
4.24
4.12
4.07
4.02
3.99
4.00
4.00
4.09
4.11
4.07
4.10
4.04
4.05
18/41
556/857
Wages
($m)
9,238.3
8,906.0
9,330.7
9,212.9
9,424.8
9,603.9
9,529.3
9,891.3
10,260.9
10,664.6
10,921.6
11,181.3
11,510.6
11,758.7
11,979.9
4/41
36/858
Domestic
Demand
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Wages
(%)
-3.6
4.8
-1.3
2.3
1.9
-0.8
3.8
3.7
3.9
2.4
2.4
2.9
2.2
1.9
22/41
299/858
Domestic
Demand
(%)
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Average Wage
($)
94,783.88
89,331.57
95,290.96
95,327.23
96,745.98
98,486.39
98,113.77
98,673.22
99,615.55
101,109.26
102,013.82
102,984.17
103,722.46
104,530.14
105,233.62
9/41
99/857
Share of the
Economy
(%)
0.96
0.89
0.88
0.86
0.86
0.85
0.83
0.84
0.85
0.86
0.85
0.86
0.86
0.86
0.85
4/41
42/858
31
Jargon & Glossary
Industry Jargon
BARRISTERA lawyer who specialises in representing

clients in court.
CONTINGENCY FEESFees calculated as a percentage
of an amount recovered by a client from litigation.
CONVEYANCINGLegal work relating to the transfer of
ownership of real estate.
INTELLECTUAL PROPERTYIntangible property

includes creations of the mind, over which owners may
seek exclusive rights.
SOLICITORA lawyer who represents clients in a wide
range of legal matters, but who generally briefs
barristers when complex advocacy work is required.
INCORPORATIONThe adoption of a corporate company

structure. Law firms that incorporate do so to limit their
liability and diversify potential sources of capital.
IBISWorld Glossary
BARRIERS TO ENTRYHigh barriers to entry mean that

new companies struggle to enter an industry, while low
barriers mean it is easy for new companies to enter an
industry.
CAPITAL INTENSITYCompares the amount of money
spent on capital (plant, machinery and equipment) with
that spent on labour. IBISWorld uses the ratio of
depreciation to wages as a proxy for capital intensity.
High capital intensity is more than $0.333 of capital to
$1 of labour; medium is $0.125 to $0.333 of capital to
$1 of labour; low is less than $0.125 of capital for every
$1 of labour.
CONSTANT PRICESThe dollar figures in the Key
Statistics table, including forecasts, are adjusted for
inflation using the current year (i.e. year published) as
the base year. This removes the impact of changes in
the purchasing power of the dollar, leaving only the
real growth or decline in industry metrics. The inflation
adjustments in IBISWorlds reports are made using the
Australian Bureau of Statistics implicit GDP price
deflator.
INDUSTRY REVENUEThe total sales of industry goods

and services (exclusive of excise and sales tax); subsidies
on production; all other operating income from outside
the firm (such as commission income, repair and service
income, and rent, leasing and hiring income); and
capital work done by rental or lease. Receipts from
interest royalties, dividends and the sale of fixed
tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA)The market value of
goods and services produced by the industry minus the
cost of goods and services used in production. IVA is
also described as the industrys contribution to GDP, or
profit plus wages and depreciation.
INTERNATIONAL TRADEThe level of international
trade is determined by ratios of exports to revenue and
imports to domestic demand. For exports/revenue: low is
less than 5%; medium is 5% to 20%; and high is more
than 20%. Imports/domestic demand: low is less than
5%; medium is 5% to 35%; and high is more than
35%.
EMPLOYMENTThe number of permanent, part-time,

temporary and casual employees, working proprietors,
partners, managers and executives within the industry.
LIFE CYCLE All industries go through periods of growth,

maturity and decline. IBISWorld determines an
industrys life cycle by considering its growth rate
(measured by IVA) compared with GDP; the growth rate
of the number of establishments; the amount of change
the industrys products are undergoing; the rate of
technological change; and the level of customer
acceptance of industry products and services.
ENTERPRISE A division that is separately managed

and keeps management accounts. Each enterprise
consists of one or more establishments that are under
common ownership or control.
NONEMPLOYING ESTABLISHMENTBusinesses with

no paid employment or payroll, also known as
nonemployers. These are mostly set up by self-employed
individuals.
ESTABLISHMENTThe smallest type of accounting unit

within an enterprise, an establishment is a single
physical location where business is conducted or where
services or industrial operations are performed. Multiple
establishments under common control make up an
enterprise.
PROFITIBISWorld uses earnings before interest and tax

(EBIT) as an indicator of a companys profitability. It is
calculated as revenue minus expenses, excluding
interest and tax.
DOMESTIC DEMANDSpending on industry goods and

services within Australia, regardless of their country of
origin. It is derived by adding imports to industry
revenue, and then subtracting exports.
EXPORTS Total value of industry goods and services

sold by Australian companies to customers abroad.
IMPORTSTotal value of industry goods and services
brought in from foreign countries to be sold in Australia.
INDUSTRY CONCENTRATION An indicator of the
dominance of the top four players in an industry.
Concentration is considered high if the top players
account for more than 70% of industry revenue. Medium
is 40% to 70% of industry revenue. Low is less than 40%.
VOLATILITY The level of volatility is determined by

averaging the absolute change in revenue in each of the
past five years. Volatility levels: very high is more than
20%; high volatility is 10% to 20%; moderate
volatility is 3% to 10%; and low volatility is less than
3%.
WAGESThe gross total wages and salaries of all
employees in the industry. Benefits and on-costs are
included in this figure.
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Home run: An increasing number of housing

transfers has supported revenue growth

Legal Services in Australia

2 About this Industry

27 Regulation & Policy

20 Market Share Concentration

20 Key Success Factors

20 Cost Structure Benchmarks

Key External Drivers

11 Industry Life Cycle

13 Products & Markets

13 Products & Services

27 Technology & Systems

31 Jargon & Glossary

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

Legal Services in Australia June 2016

About this Industry

Firms in the industry primarily provide

The primary activities of this industry are

Conveyancing services provided by

The major products and services in this industry are

K6419c Custody, Trustee and Stock Exchange Services in Australia

Legal Services in Australia June 2016

About this Industry

For additional information on this industry

writes over 500 Australian

Legal Services in Australia June 2016

Annual Growth 11-16

Annual Growth 16-21

Business confidence index

Revenue vs. employment growth

There are no major

Key External Drivers

Business confidence index

Level of criminal activity

Life Cycle Stage

Legal Services in Australia June 2016

Executive Summary | Key External Drivers | Current Performance

The past five years have challenged the

PRC Lawyers, to become King & Wood

Key External Drivers

Business confidence index

criminal activity also reflects heightened

Level of criminal activity

Number of housing transfers

Legal Services in Australia June 2016

Key External Drivers

of housing transfers is expected to rise in

been volatile. Demand from financial

Demand from financial and

Business confidence index

The Legal Services industry has

firms or expanded their international

Demand for legal services has been

costs. Fewer mergers, acquisitions and

Legal Services in Australia June 2016

and a slowdown in private sector capital

acquiring Australian companies and

In response to volatile demand, many law

Smith Freehills. Allens, another

Legal Services in Australia June 2016

Over the past five years, traditional

Firms in the Legal Services industry are