News In Focus
Survey shows further fall in profits across legal sector
Scotland’s law firms saw an average 11% drop in profits per partner last year, but some larger and regional firms managed a rise despite the trend, according to the Law Society of Scotland’s annual Cost of Time survey.
The survey, based on results from 220 law firms all over Scotland, from sole practitioners to firms of more than 20 partners, showed that average profits per equity partner fell from £72,000 in 2009 to £64,000 last year. This is the second consecutive drop for legal firms, which, in 2008, showed a high in average profits per equity partner of £104,000.
However the 10 large firms which took part in the 2010 survey saw a significant bounce back from a 40% drop experienced by (a different but comparable group of) large firms the previous year. Profits averaged at £178,000 per equity partner in the 2010 survey results, compared to £136,000 in 2009, which, while high compared to the rest of the profession in Scotland, remains lower than large commercial firms south of the border.
Sole practitioner and 5-9 partner firms were worst affected, with an average drop for sole practitioners from £55,000 to £49,000, with those in Glasgow and Edinburgh worst hit with 24% and 12% falls respectively. Scottish firms with between five and nine equity partners saw their profits per partner fall from £84,000 to £66,000.
Smaller firms of two, three or four partners in rural areas and firms in Aberdeen, Perth and Dundee fared better than their counterparts in the two largest cities and largely maintained profits at 2009 levels.
Management consultant Andrew Otterburn, co-author of the report with actuary Dr John Pollock, said:“The Cost of Time survey results illustrate the two divergent strands to have emerged in Scotland’s legal sector – the higher earning but relatively low number of large commercial firms in Glasgow and Edinburgh, which employ large numbers of solicitors and have fared better this year, and those at smaller firms.”
Lorna Jack, Chief Executive of the Law Society, commented: “This year’s Cost of Time survey shows the experience of firms around the country has varied greatly, with larger firms appearing to hold up well while others have seen their profits plunge further, particularly small firms in Edinburgh and Glasgow.
“The report also predicts continuing difficulties for this year as the public sector cuts make an impact, including a reduced legal aid budget which, while not as severe in Scotland as elsewhere in the UK, will have an impact on our members."
Ms Jack added that solicitors would need to plan ahead in order to make the most of any new business opportunities this year, which will see the introduction of alternative business structures, allowing solicitors to set up in partnership with others. She predicted: "I don’t expect to see a flood of new business entrants, but solicitors do need to be thinking very seriously about how they shape their business as we move into 2011.
“The legal services sector is and will remain highly competitive with clients continually pushing to get more for less. We will continue to support our members in a rapidly changing environment and encourage them to think ahead – whether that results in increased consolidation and use of technology or more niche sector firms developing remains to be seen, but none of us can afford to stand still in what continues to be a difficult economic climate.”
A fuller analysis of the Cost of Time survey will appear in the February issue of the Journal, publishing on 14 February.