Mitigating financial risk in law firms with financial education

Financial risk isn’t just about your or your client’s corporate finances; your employees' own personal financial circumstances affect your firm’s performance and reputation.

Without due guidance and support poor financial behaviours can escalate and in the worst case result in serious financial misconduct. Recent events show the risk of misconduct is not confined to those individuals with “access to the keys” of a firm’s finances - it is a risk within every faction of a firm, regardless of role or seniority. 

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So how are law firms acting to build financial competency to reduce the risk of misconduct, given that research showed that 61% of lawyers perceived their financial skills as average or below and 72% of lawyers report at least one sign of poor mental health relating to their finances that could affect their judgement and ability at work.

Signs of financial instability

Low levels of financial confidence may not trouble firms too much, given the chronic lack of financial education in the UK. However, with a startling 48% of lawyers admitting regular reliance on credit cards because they've run out of money at the end of the month and 36% professing to have less than £1,000 in savings, there are signs that perhaps all is not well when it comes to lawyer financial management. 

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Despite earning on average far in excess of the national mean wage, lawyers present troubling indicators of financial behaviour. 

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60% of lawyers feel pressure to spend beyond their means. When asked about a fundamental of good financial management skills - the ability to stick to a budget on a monthly basis - a whopping 68% of lawyers respond to say they don’t bother to budget or are unable to stick to one. 

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The data shows clearly a 77% correlation between those who don’t or can’t budget with those reliant on credit cards to pay for everyday essentials at the end of the month. A lack of basic financial competency leaves lawyers exposed to a compounding and expensive debt cycle.

Building a financially resilient workforce

On an individual level, poor financial management can lead to anxiety, lack of motivation, sleepless nights and depression. At the lowest end of the risk spectrum, this may leave a firm dealing with poor performance, increased absence and lower retention as individuals look for ways out of their immediate financial pressure.

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However, without proper support and intervention, these financial pressures can stack up and leave an individual vulnerable. Vulnerable to undue influence and at risk of becoming a bad actor. 

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Lawyers (especially those in the South of England) have some of the highest salaries in the UK, yet the research shows a chronic lack of financial resilience in the system. So simply paying people more won’t make the problem go away. Law firms that want to mitigate the risks of problematic financial behaviour must do so by proactively building financial competencies.

The competitive advantage of financial acumen

Understanding the risk and acting fast is the safest bet to reduce the likelihood of financial misconduct. 

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However, firms that want to get ahead of this risk will have to do more than pay lip service to the issue. A strategy to build financial competencies must overcome outdated engagement methods, such as email signposting to intranet sites full of out-of-date information or online troves of static information in written blogs and articles. 

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Competency training requires digital learning programmes or in-person training that cut through the noise with practical, real-life examples to make financial education relatable and engaging for the highly educated, time-poor lawyer. Training, coupled with resources to call upon in times of genuine need keeps lawyers abreast of their responsibilities while ensuring law firms are on the front foot of any impending crisis.

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Law firms must place a greater emphasis on their obligation to create an environment where lawyers can upskill and ask for help when needed when it comes to financial management. If for no other reason than to ensure the chances of a financial misconduct event happening on their watch is reduced as far as possible.