Law firms are growing steadily amid geopolitical tension, but tectonic forces beneath the surface signal deeper risks and a rapidly evolving legal landscape
Key takeaways in Q3:
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Strong Q3 performance — The Law Firm Financial Index (LFFI) score increased by 8 points compared to Q2 2025, highlighting a quarter of robust demand and industry resilience.
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Client-driven demand shift — Midsize law firms led the increase in transactional practices, while Am Law Second Hundred firms dominated counter-cyclical growth, driven by large corporate clients shifting work to lower-rate providers.
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Strategic caution advised — Persistent risks, rising costs, and unresolved long-term challenges mean firms must remain cautious and strategic.
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Law firms demonstrated remarkable performance through a geopolitically tense third quarter of 2025, as clients increasingly sought legal guidance to navigate market complexity and global uncertainty. This surge in demand propelled the Thomson Reuters® Institute’s Law Firm Financial Index (LFFI) score to 63 for the third quarter, marking a notable rise from earlier in the year.
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Q3 2025 Law Firm Financial Index
Yet, as a closer look reveals, the industry’s strong performance sits atop tectonic forces that, while driving change, also carry the potential to disrupt long-term stability.
Firms on shifting ground
At the core of this shift is a surge in client activity that’s breaking records — and coinciding with a period in which the price for legal services is rising like never before. Transactional practices are thriving, with mergers and acquisitions, corporate law, real estate, and tax practices seeing a marked uptick in demand. Midsize firms have stepped into leadership roles within these practices, demonstrating agility and resilience as they capture fresh business opportunities and respond swiftly to evolving client needs.
However, this isn’t just a story of expansion. The competitive landscape is being redrawn as clients reassess their legal partnerships. Many are prioritizing value and flexibility, shifting work to firms that offer more competitive pricing — a trend we’ve noticed for the past year or so. This is obviously working to the advantage of those firms seeing significant demand growth as a result, but the more expensive law firms are also seeing boosted performance, as the trend helps them secure higher rates on the work they do maintain.
In response to this rising demand, many firms — especially those in the Midsize and Second Hundred tiers — are investing heavily in talent and technology. Even as the cost of hiring continues to climb, some firms are broadening their search beyond traditional legal roles to include specialists in technology, data, and knowledge management. These strategic hires are aimed at boosting operational efficiency and enhancing client service in an increasingly AI-driven environment.
With overhead rising and competitive pressures mounting, law firms must strike a careful balance between strategic investment and disciplined cost management.
Emerging fault lines of legal strategy
As the Q3 2025 LFFI report shows, the current environment is marked by both promise and risk. Economic and geopolitical uncertainties loom large, and the next shake-up could be just around the corner. Law firms are enjoying a period of robust growth certainly, but the ground beneath them remains unsettled. The ability to navigate uncertainty, anticipate change, and respond with agility will be critical in the months ahead.
For law firm leaders, partners, and strategists, this is a moment to reflect on the lessons of the past and to prepare for the challenges of the future. The industry rewards those who can balance ambition with caution, invest wisely in talent and technology, and stay attuned to the evolving needs of clients. A firm’s success will depend on its leaders’ ability to rise above the turbulence and seize the opportunities that lie ahead.
As the legal landscape continues to shift, one thing is clear: The forces reshaping the industry demand careful navigation, and firms must now approach the path forward with greater caution and strategic foresight.
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