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Legal team update - Number of sole practitioner law firms falls by more than a fifth in five years

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8 December 2016

The number of sole practitioner law firms has fallen by 22% in the last five years, from 3,400 in 2012 to just 2,600 today*, says Hazlewoods, Chartered Accountants and Business Advisers who specialise in the legal profession.

According to Hazlewoods, sole practitioners now account for a quarter (25%) of the total number of law firms, compared to almost a third (31%) five years ago.

Hazlewoods says that one key reason behind this downward trend is likely to be the comparatively heavy compliance burden for sole practitioners. 

The firm explains that law firms are required to have designated individuals in both the Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) roles. A sole practitioner will usually take on both of these roles themselves, as the COLP needs to be a qualified solicitor.

Hazlewoods says that COLPs and COFAs take on personal responsibility for ensuring that the firm complies with all regulations of the Solicitors Regulation Authority (SRA), including such diverse tasks as client file reviews, Anti-Money Laundering checks, overseeing accounting systems, and ensuring staff are appropriately trained. There is also a requirement to report a substantial amount of information to the regulator.

The firms adds that the SRA has acknowledged that the volume of regulations affecting law firms need to be reduced, with the regulator expected to shorten its Handbook – the document setting out all its requirements – substantially within the next two years.

Hazlewoods says that partly to avoid the regulatory burden of being a sole practitioner, some independently-minded lawyers are joining ‘virtual’ law firms. Virtual firms can be an appealing alternative for those who want to work for themselves because it can give them flexibility and control over the way they work, without the overheads and administration associated with running their own practice.

Lawyers can benefit from a virtual firm’s ‘umbrella’ of resources, including its compliance, accounts, marketing, IT and other back office support, as well as growing brand recognition and wider reach, while offering attractive financial rewards. 

Andy Harris, Director at Hazlewoods, says: “It just isn’t as sustainable to be a sole practitioner as it once was. The environment for generalist sole practitioners is far harder than it was.”

“Sole practitioners are seeing significant amounts of their time being eaten up by making sure they are complying with regulatory requirements – and that’s time they can’t spend on fee-earning work.”

“The reality is that the smaller the firm, the bigger the compliance burden as a percentage of billable time. Sole practitioners just don’t have sufficient economies of scale.”

“Although the SRA has recognised this and is taking steps to reduce the size of its Handbook, those changes are still at least 18 months away.”

“At the same time, lawyers who want more flexibility and control over their working arrangements are increasingly seeing the value in working for a virtual law firm.”

“Some may see this as the best of both worlds, enabling them to operate as a self-employed consultant or work from home or part-time, while enjoying the perks that a bigger firm offers such as extensive resources, better cost-to-earnings ratios and access to a bigger market.”