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Law firms' profits up despite income drop

MANY Scottish law firms have seen their fee income stay flat or fall but have still managed to increase profits, according to research on the sector.

PROMISING: Lorna jack, the Law Society's CEO, said improvements are due to good management . Picture: Steve Cox
PROMISING: Lorna jack, the Law Society's CEO, said improvements are due to good management . Picture: Steve Cox

The data, contained in Royal Bank of Scotland's annual financial benchmarking report on law firms, suggested fees charged by Scottish legal practitioners did not match the 3% rise recorded across the UK.

The report only covers firms with fee income of up to £25 million, which reduces the chance of the UK picture being skewed by large corporate specialists in the City of London. While only a handful of Scottish firms bring in annual fee income of more than £25m, RBS confirmed 56 of the 380 respondents in the survey were Scottish firms. Of those Scottish respondents, 40 were categorised as being small as they had annual fees of less than £1.5m.

The median of chargeable hours across the year in Scotland was 1000, which was in line with the UK average. But the recovered rate per hour - how much a firm actually takes in - came in at a median of £115 for Scottish firms, down from the £119 recorded in the report from the previous year. That was the second lowest in the survey and only ahead of the south west of England at £110 and below the £140 UK median.

The upper quartile of larger Scottish firms saw their hourly recovered rate at £159, down from £172. The median was at £118, down from £121, while the lower quartile came in at £96, up from £92. In smaller practices the median was down from £119 to £112. According to the research the lowest quartile of Scottish firms actually saw a 6% slide in their fee income while the upper quartile recorded a 6% increase.

The study said: "Median growth rates of about 3% can be seen across England and Wales but it is interesting to see that there was 6% growth in London but none in Scotland, highlighting that there remain very different pressures and issues in different parts of the UK."

The lowest quartile of small firms in Scotland saw average fees per fee earner at £96,000, with a median of £116,000 and the higher end coming in at £157,000. In larger Scottish firms the lowest quartile pulled in £96,000, the median was £113,000 and the upper quartile was at £143,000. The median across the UK was £136,000 with London's £176.000 the highest.

The research also found equity partners in Scotland are generating £254,000 of fees in the lowest quartile, a median of £312,000 and £546,000 in the upper quartile.

Again Scotland came in below the UK headline numbers of £275,000, £425,000 and £680,000 respectively.

Equity partners in large firms from the upper quartile in London, the south east, north east and north west of England all generated fees of more than £1m.

In terms of profit per equity partner the average at all Scottish firms came in at £86,000, down from £90,000 the previous year. However the Scottish figure for 2014 was above counterparts from Wales, the Midlands and the east of England as well as the south west. London had the largest median profit per equity partner at £127,000 while the UK was £87,000.

In large Scottish firms the lower quartile figure was £101,000, the median £129,000 and the upper quartile at £299,000.

For smaller firms the figures were £38,000, £68,000 and £98,000.

The report showed Scottish firms recorded a median 6% increase in profit between 2012 and 2013 although that was just 1% in the lower quartile and 14% in the upper one. No larger Scottish firms in the lower quartile saw increased profits, with 1% the median and only a 2% rise for the upper quartile.

For smaller firms the median was 10%, a 4% increase in the lower quartile and 17% in the upper quartile.

Across the UK the median rise was 7% while it was 2% in the lower quartile and 25% in the upper quartile.

Lorna Jack, chief executive of the Law Society of Scotland said: "It's very encouraging to see that our members have been able to improve their profit margins through the good management of their firms.

"Uncertain economic outlook has meant solicitors are working harder than ever to sustain their businesses, given the limited opportunities to increase fee income."

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