As large firms ditch private clients to concentrate on more profitable corporate work, Lucy Trevelyan explains how other practices are benefiting from competing for high-level advice


In the 1990s, when City firms such as Freshfields Bruckhaus Deringer and Slaughter and May were shedding their private client departments, Birmingham-based Wragge & Co’s then managing partner, Quentin Poole, took a different view.


The City firms were proclaiming that private client work did not fit with their core business, and that private clients were objecting to paying the firms’ rates for work that could be serviced elsewhere for much less. They also argued that the work could give rise to potential conflicts of interest when acting for a major shareholder of an existing corporate client.


In 1999, Mr Poole said that Wragge & Co saw things differently, and had procured much work by picking up the clients from City firms that had discarded their private client practices.


How things change. From May, Wragge & Co’s 15-strong private client team will transfer to Mills & Reeve’s Birmingham office in a move that sees the latter double its existing private client capability. The team will be headed by partner Matthew Hansell, who joined from Birmingham firm Martineau Johnson in May last year.


So why are the large firms continuing to dump their private client departments? Mr Hansell says: ‘Many large firms have concentrated on targeting large entities like plcs and government departments. These organisations require little, if any, private client services. Private client work has not been a core area for these firms and has become marginalised. This results in decisions of the firm being taken without that kind of work in mind, which leads to a lack of investment in the private client team and almost inevitably to the firm giving up that work.’


Graham Brown, head of trust and tax at City firm Payne Hicks Beach, says the simple answer – but not the only one – to why private client work has fallen out of favour, is money. He says: ‘Private client work in the true sense is usually going to be less profitable than corporate work, and is generally perceived by corporate lawyers as being so. It is rare to have a private client file on which, for example, a partner and an assistant can both work at City charge-out rates, recording every hour and be paid for it.’


He says the close lawyer/client relationship required for the provision of quality work for high net-worth individuals is also an alien concept to City corporate practices. ‘The professional philosophy required, the long-term memory of events, record keeping and archiving, the continuity of partners and staff, and the willingness to accept sometimes “fees tomorrow” rather than “fees today” are all markedly different from the features of a City corporate practice.


‘Those running large corporate firms believe a private client practice is inconsistent with their image – it’s not macho – and wish therefore to “clean up” their firm accordingly. A few City firms have pursued this quest for [the desired] image to the point where although they have consciously preserved a small private client practice, usually trust-based, they have re-branded it with a name like “corporate services” and have hidden it so no one looking at their Web site would know it was there.’


Mr Hansell says that far from marring a corporate firm’s image, a private client service can actually fit neatly with a corporate practice.


‘It works particularly well for entrepreneurially managed businesses,’ he says. ‘The owners require corporate and private client services, and the private client services can be a way of winning and securing the corporate work. It’s worth bearing in mind that private companies can be very large – often larger than plcs – and produce very good fees.’


Both Patricia Milner, partner at leading City private client firm Withers, and David Dale, head of private client at Newcastle’s Dickinson Dees, agree that private client work – which involves predominantly tax and succession planning, asset preservation and structuring of ownership of homes overseas – has become more specialist in recent years, which has deterred some firms.


Mr Dale says: ‘The work has become extremely complex over the past ten or 15 years. A decision therefore had to be made by large corporate firms whether to devote resources to develop their – usually small – private client departments to cope with the increasing specialisms required. Most large corporate firms decided the substantial resources required could be put to better use in other areas, and decided to close the departments.’


Jenny Hardy, Wragge & Co’s marketing director, says that although her firm’s private client team was considered valuable, it did not really fit in with the broad strategy of the firm’s business. She says: ‘We weren’t actively seeking to get rid of it but the head of our private client team, Gary Barber, was approached and we felt it was the right result for everyone. It was a reflection of our greater focus on large corporate organisations. It was never about image.’


She says private client work amounted to only a small percentage of the firm’s turnover. Directors and other clients who need those services will be referred to Mills & Reeve in the future.


Ms Hardy admits that the private client department struggled to keep fees to levels that can be commanded by other more corporate-focused departments. She says: ‘It is very difficult to keep fees up but to us that was less important than the issue of strategic fit. Strategy is as much about deciding what not to do as what to do, which is quite difficult for lawyers. If one department is completely different, it’s going to feel a bit like a round peg in a square hole.’


Mr Dale – whose firm was founded on the provision of high-level private client advice to wealthy individuals, a department which spawned the firm’s now dominant corporate element – says private client work does not necessarily have to be the poor relation. He says: ‘Our private client profitability is budgeted at the same level as our corporate profitability.


‘The trick is to have work handled at the appropriate level, and to be strict in taking on work of a suitable type. It can be easy to take on a large amount of relatively low-level work for individuals who are not in the top level of wealth, and although this generates a substantial level of fee income, the level of profitability is often not adequate.


‘Every year for at least the last decade the department has grown at a roughly steady rate of between 5% and 10% per year in fee income terms, and this rate of expansion is expected to continue or to grow in our five-year business plan projections.’


He adds: ‘Private client work is capable of being at least as profitable as corporate work, and in some areas can exceed it.’


Inevitably, firms that have chosen to stick with private client work have benefited from these larger firms withdrawing from the field. Mr Brown says Payne Hicks Beach, which has absorbed the majority of Cameron Markby’s (as was) private client department in 1989, a team from Beachcroft Wansbroughs in 1997 and the head of Eversheds’ London private capital department in 2003, acquired new clients whose business was previously serviced by the private client departments of City firms.


Mr Dale adds: ‘At Dickinson Dees, we decided not only to retain our private client department, but to expand it. Opting out by large corporate firms has helped, since the private clients generated by the corporate firms had to look elsewhere for legal advice, and there has therefore been a steady flow of extremely good-quality clients moving towards those firms which provide specialist high-level advice. Opting out has also meant that those firms which specialise in high-level private client advice have been able to take over the lawyers and teams from the corporate firms.’


Mills & Reeve also has further expansion plans. Mr Hansell says: ‘It’s very profitable work and so from a commercial point of view it makes sense to do more. Because of the withdrawal from the marketplace of so many firms, it is one of the few markets which is under-lawyered.’


Ms Milner says her firm has also picked up some quality lawyers thanks to the closing of other firms’ private client departments. But she adds: ‘One issue with the number of firms actively involved in private client work declining is that the pool from where you might recruit has also gone down.’


She says clients are increasingly coming from commercial rather than ‘old money’ backgrounds and are demanding much more international advice – one reason why Withers merged with New York-based Bergman Horowitz & Reynolds in 2002. Competition for work via beauty parades is also more prevalent, she says. ‘Our clients are looking to us to give international, joined up advice. We are getting a lot of cross US/UK work.’


However, the dwindling number of firms in the private client field has not dampened the competitiveness of those still in the sector. Mr Brown says: ‘It is extremely competitive, although in a different way from corporate practice. Cold calling or targeting of private clients does occur, but it is less common than in corporate work and certainly badly viewed. Its equivalent is, however, found in social networking or cultivation of personal contacts – so the competition is less open and visible.’


However, there is more to private client work than simply schmoozing with clients. Mr Dale says: ‘Trying to keep up to date with legislative changes is the hardest area. But is completely outweighed by the advantages; I get to know some extremely interesting people, many of whom have become firm friends. Almost by definition, wealthy individuals usually have an extremely broad range of interests – often at the highest possible level – and friendship with them is something which can probably not be generated through any other area of work.’


For some corporate lawyers, the lack of a personal angle can be a downside to their work. This is not a problem for private client lawyers. Mr Dale says: ‘At all times, you are aware that you are dealing with people, and not merely with papers and theory.’


Lucy Trevelyan is a freelance journalist