Q2 2025 LFFI: The eye of the hurricane

Law firms navigated a geopolitically tense second quarter of 2025 with surprising steadiness, as clients turned to legal counsel for clarity amid rising regulatory complexity, which pushed up demand. That lifted the Thomson Reuters® Institute Law Firm Financial Index (LFFI) score to 55, a rise of 4 points compared to the first quarter. Yet, as a deeper look at the numbers show, long-term risks remain unresolved.

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Thomson Reuters® Institute Law Firm Financial Index Report

Key takeaways in Q2

• • • The Law Firm Financial Index (LFFI) score increased by 4 points compared to Q1 2025, reflecting a surprisingly stable quarter with growing legal demand.
    • Midsize law firms and Second Hundred firms experienced stronger revenue growth, outperforming Am Law 100 firms.
    • Overhead and talent-related expenses continue to rise, especially in areas like technology and knowledge management.

A stable quarter, but one with mixed signals

As said, Q2 2025 stood out for its unexpected stability. Despite the uncertain geopolitical and economic environment, law firms experienced a notable rise in demand for legal services, a development that was potentially driven by clients seeking expert guidance amid growing international tensions and regulatory uncertainty.

However, this apparent calm may be misleading. Counter-cyclical practices — such as litigation, bankruptcy and labor & employment — have gained prominence. Litigation leads the race as the fastest-growing area, while tax and labor also are showing signs of an upswing.

The second quarter also saw an acceleration in a longstanding trend within the competitive landscape. Midsize and Am Law Second Hundred firms continued to be the primary sources that are driving overall growth, leading in revenue growth and outperforming the traditionally dominant Am Law 100. Meanwhile, Am Law 100 firms faced slowdowns in several practice areas and reduced headcount growth, highlighting the challenges of scale amid an uncertain environment.

In an additional challenge, operating and talent costs continued to rise steadily. In Q2, firms invested heavily in strategic areas such as technology and knowledge management systems. These investments are no longer seen as optional — they are now considered essential for firms to maintain competitiveness and deliver value to increasingly demanding clients.

Can the legal sector hold steady amid uncertainty?

At first glance, financial indicators suggest a robust foundation in which law firms operate nowadays; however, within the legal sector, there is a growing sense that this stability may be short-lived. While it is tempting to think that the current moment will persist until year’s end and bring a return to normalcy, it appears as if the legal industry is now sitting in the calm eye of a hurricane, with darker skies on the horizon.

Adding to the complexity is the growing risk of a potential recession. While the current environment still allows for growth as lawyers facilitate all aspects of an economy in transition, the possibility of economic slowdown means that firms should prepare for or reassess their already existing recession plans. The lessons from previous downturns thus remain relevant: Revenues can decline rapidly when external conditions shift, while expenses tend to remain fixed and begin to exert added pressure on profits.

Simultaneously, clients seem to become more selective and cost-conscious, scrutinizing with which law firms or legal service providers new and existing work should land. This combination of rising costs and shifting client expectations demands that law firms enact a more strategic, flexible, and data-driven approach to maintain profitability in a rapidly evolving landscape. In this context, firms are encouraged to adopt a more cautious and preventive strategy — one that’s focused on long-term sustainability and risk mitigation.

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