Against the headwinds of economic turbulence, financial services firms are entering cost containment mode. How to stay agile in an uncertain climate against a backdrop of a recruitment market that remains competitive can be a difficult balancing act, as businesses weigh up the cost of additional headcount against the implications of slowing down hiring. Nonetheless, deals continue to be signed on the dotted line, and as a result demand from businesses for the best in-house legal minds to help drive activity shows no sign of slowing down – rather, in-house legal recruitment is ramping up. FS firms are fast looking to bolster their in-house legal capacity to help weather any potential storms ahead.

Leveraging interim legal talent

So, how do you solve the problem of increasing in-house legal capacity balanced with economic agility? FS firms are increasingly turning to a nimble solution: bringing in temporary, but talented, legal minds.

Ordinarily, secondees could be a viable solution, but there have been suggestions from senior legal figures at top investment banks that law firms do not have a surplus of associates available. However, at the same, these leaders are identifying a need to expand legal capacity in order to address workloads. Whilst a tricky situation, viable solutions do exist as do talented lawyers. To resolve this Gordian Knot, businesses are utilising legal contractors, but for a broader range of reasons than previous years.

A cost-effective approach

Traditionally, financial organisations are faced with regulations and projects that require specialist legal personnel with relevant technical expertise to assist with delivery, such as IBOR, Initial Margin and ESG-related initiatives. However, searches for suitable permanent candidates for such work are taking longer than ever, and this is having inflationary pressures on offers, currently running at 15-20% year-on-year – greatly upsetting the carefully curated salary scales in London’s premier banking institutions.

Yet, Major, Lindsey & Africa’s survey recently revealed that pay increases for in-house legal teams in London are lagging considerably behind the global rate, with baseline salaries $60,000 less than the global average, as financial services firms in particular struggle to budget for increasing wage expectations and the need for expanded legal capacity. This is leaving holes within legal teams’ skillsets such as derivatives, structured finance and investment funds – all of which are highly sought after in today’s London market.

Typically, financial organisations, particularly the big investment banks, engage with law firm consultancies and professional services companies for the delivery of projects, but a more cost-effective approach has begun to emerge recently. Banks are more frequently hiring independent specialist legal contractors. With new PRA and FCA driven regulation continually being rolled out, these interim legal hiring needs will not let up, irrespective of the economic climate, so businesses are always looking for cheaper ways of addressing department skill gaps.

Indeed, rather than further stretching permanent team members that already have a full workload, these legal contractors do not require intensive training, can complete projects in shorter time frames, and can be justified as a cost-saving initiative when the alternative is the billable hour. There is flexibility to extend and terminate the contractor dependent on the demands of the project, and financial organisations have complete control.

How to secure the best legal minds

Ultimately, the need for the interim talent expertise will fulfil its purpose upon completion of the project, and these experienced lawyers price themselves accordingly, factoring in gaps in between contracts, and their perception of their value to the organisation. In today’s market, there is a large portfolio of interim lawyers across major financial services skillsets (such as banking, funds, derivatives and securities services) available for short-term assignments. However, organisations need to move quickly to secure the very best candidates and fend off competitors, helped by traditionally shorter recruitment processes, and using recommendations from trusted advisors with in-depth knowledge of the market.

In fact, most leading financial organisations have now also turned to hiring interim lawyers to solve the short-term conundrum of department skill gaps and workload inefficiencies caused by non-project related matters, such as resignations, maternity/paternity leave and sickness leave. For those looking to hire on a permanent basis, hiring an interim lawyer takes the pressure off finding a suitable permanent candidate as contractors are often more immediately available and able to parachute in at short notice. Organisations will also have the flexibility to extend and terminate interim legal personnel dependent on how long it takes to secure a permanent replacement.

Often, many interim lawyers are converted to permanent employment due to a successful interim engagement. Major, Lindsey & Africa have partnered with several buy-side firms this year that have adopted a ‘try before you buy approach’. This has enabled firms to assess if a candidate is a good fit, justify the hiring need to the business and facilitates the biding of time to ascertain how the future economy will impact permanent hiring needs.

Overall, FS firms recognise that hiring contractors is an excellent solution to ease the pressure on over-stretched legal teams. Even with the economic downturn and recent pandemic, legal recruitment continues to remain busy, and workloads continue to increase. Flexible legal contractors are quick and efficient plugs for legal teams that often do not require the same approval to hire compared to permanent employees, with many financial services organisations utilising different internal budgets to spread costs. Although hiring legal contractors is not a new phenomenon for most large investment banks when it comes to project work, their motivations for using them are broader than before.