Client who loved me

Some city law firms were left shaken after their decision to get out of big-ticket private client work.

One has been stirred to try to regain a toehold in the market.

But, writes Anne Mizzi, in the current economic downturn, it seems that private client work is for ever

The Court of Appeal ruled late last year that Shan Lambert was entitled to half her husband Harry's 20 million fortune in a divorce settlement.

The judge told Mr Lambert, who founded free newspaper chain Adscene, that in her role as wife and mother, Mrs Lambert had been his equal business partner.

This may sound like a lot of money, but to the London firms acting for private clients, it is small beer.

One private client partner confides: 'David Beckham is at the bottom end of who we advise.

We have a supermodel, actors and TV personalities.

'We take them on largely because of the glamour side, but they are not as glamorous as the most lucrative client, who would be the billionaire who falls out with his family - though, of course, it's terribly sad from a personal point of view.'

According to a recent Ernst & Young/Cap Gemini survey, wealth is consolidating in the hands of an increasingly numerous and affluent elite of high net worth individuals and families.

And private client also encompasses offshore work for private banks and trusts.

Claire Morris, head of private client at magic circle firm Allen & Overy (A&O), whose client list includes the Sultan of Brunei, says: 'A lot of the clients we act for are very rich, and the rich get richer.'

Macfarlanes' private client head, John Rhodes, agrees: 'The really wealthy people, who are worth $50 million upwards, have by and large survived remarkably well as their investments are much more diversified.

They've been cute enough not to lose a great deal of money [in the current downturn].'

This might seem very glamorous and sexy, but most of the top City law firms are not interested.

All the magic circle firms except A&O dumped their private client departments in the 1980s and now the big players in the tiers beneath them are following suit.

The sector is consolidating in the hands of a few smaller practices that are strategically selling this service, and lawyers expect the trend to continue.

Mr Rhodes says: 'When I first realised that was happening, I thought it was wonderful.

In retrospect it was a bit of a disaster.

'There is now a much smaller pool of talent.

Firms like Clifford Chance, Slaughter and May and Freshfields trained extremely bright people, and the partners who ran these departments were top of the tree.

They haven't been replaced and the pool of talent has shrunk, so if you go to look for the people who we want to hire, they are few and far between.

That's bad news.'

It is an open secret that Clifford Chance has been trying to revive its private client practice, but faces a job regaining the confidence of potential recruits who fear the firm could in time decide to close the department once more.

As economic conditions toughen, it makes sense for private client lawyers to flock to firms that have shown commitment to this practice area and attract the lion's share of business.

Firms such as Nabarro Nathanson and Eversheds have shed teams of private client lawyers to focus on their core areas and business clients as the economy slows.

The bottom line for these firms is that wealthy clients may need some advice on structuring their assets, but they can generate far more fee income by focusing on their core corporate and commercial areas, and advising clients to use specialist firms for this type of advice.

Private client departments need to be sizeable in order to offer the full range of skills, but lawyers say it is difficult to recruit people with the knowledge of the law relating to individuals that can provide a City-style professional service.

The firm must also be able to offer local advice in other jurisdictions to provide tax-efficient wealth strategies.

Market-leading City practice Withers merged with US firm Bergman Horowitz & Reynolds a year ago and also has a Milan office, as well as plans to expand into Switzerland and Los Angeles.

Charles Pike, head of private client, insists the merger has not affected referrals from the US and sticks by the strategic decision to build an international enterprise.

But Mr Rhodes blanches at the idea of an international practice: 'Absolutely not.

It would be distracting and destructive.

Most of our most interesting work is referred to us; if we teamed up with one firm, other firms would be unlikely to come to us because we would be in direct competition with them.'

Lawrence Graham puts stock in its 'best friends' network and has foreign-qualified lawyers in-house in London.

Andrew Young, head of private client, says international reach is essential, but adds: 'There is no Clifford Chance of the private client world.

It's important to be in London, first and foremost.

London is the world centre for sophisticated global wealth structuring for ultra-high net worth individuals.'

The big private client firms do a spread of work advising both rich people and private banks and offshore trusts.

Central to private client law is knowledge of trusts and tax.

Law firms might have a place on a bank's panel and will also benefit from referrals from the bank's individual clients on a more informal basis.

The second type of relationship tends to work on reciprocal referrals.

The economy's slowdown has hit global asset management badly, but law firms are still busy advising trustees on global wealth planning.

The traditional ways of investing money abroad are now under pressure from the Organisation for Economic Co-operation and Development and the EU.

The EU council of ministers is currently in talks to deal with banking secrecy in Switzerland.

Mr Rhodes says this is an 'absolutely crucial issue' for clients, as are, according to Ms Morris, the changes in tax law relating to residents and domicile which may result from a government consultation.

The difference between these clients and most people is that they are incredibly rich.

But they are usually not companies.

So they need a top-notch service, with an appreciation of their individual concerns.

Dealing with their offspring is another difference.

'It is different from acting for a multi-national corporate, largely because of the personalities involved,' suggests Mr Young.

'Corporates have to act in accordance with generally accepted rules of corporate governance and in their shareholders' interests.

The advice is as complex, but we have a principal who is not delivering to shareholders, and could be doing something on a caprice.

I think that generally adds spice.

'Some are relatively unremarkable, but they can be interesting on a human level.

Some lawyers get their kicks out of churning out documents and being involved in big deals.

But good private client lawyers are students of psychology.'

Another key difference is that corporate work tends to be transactional.

Despite the recent trend for corporate clients and law firms to try to establish deeper and more meaningful relationships, the relationship between private clients and firms is closer and lasts longer.

'You build long-term relationships with people who come back to you,' adds Mr Rhodes.

'Corporate lawyers act for professionals.

They have made their decisions and they call the shots.

If you are acting for private clients you are more involved.'

Private client lawyers are entrusted with information about their clients which would make newspaper headlines.

Sometimes the lawyers must make statements to the press, but generally they are expected to keep a low profile.

Confidentiality is key to winning referrals in celebrity circles.

'It is glamorous in some ways, but you don't sing it from the rooftops,' says Mr Pike.

'The last thing they want is a profile that links them with lawyers.

We act for a number of media and sports people.

The best way to get business is not to talk about them and they might recommend you.'

Perhaps this secrecy contributes to the fact that private client work is suffering from an image crisis.

It is much harder for a firm to market itself if it cannot mention a few key names from its client list.

Just as insolvency lawyers now prefer to be called corporate restructuring lawyers, 'private capital' is the new nom de rigueur for private client.

'Even the name "private client" smacks of grannies from Redcar or Colonel Bufton Tufton,' admits Mr Young.

'It doesn't seem sexy or relevant to a modern commercial practice.'

Unfortunately, given the confidentiality requirements, there is little firms can do to raise their profile in this area.

But Mr Young says it still has its attractions: 'It's terribly glamorous acting for millionaires and offshore private banks.

It's not just acting for individuals; it could be a bank or big family with no UK connection at all.

We have clients whose net worth is greater than the GDP of several countries, and I'm not talking about tin-pot countries.

A sobering thought is that the glamour is only vicarious, although some people forget that.'

It is difficult to find a private client lawyer who does not find the job interesting.

And even at A&O, where partners are seldom made up in the department, young lawyers are keen to get a foot in.

'It's a pretty popular department,' says Ms Morris.

'It's a lot more interesting than doing a securitisation.'

This - and the fact that the sector is sheltered` from the corporate downturn - might well just give private client teams the edge that they are looking for when competing for new talent in the volatile recruitment market.

Anne Mizzi is a freelance journalist