Scotland's solicitors’ profession is becoming increasingly polarised as the downturn continues, new figures show.
Smaller firms in Glasgow and Edinburgh are continuing to suffer sharp declines in profitability, but the biggest practices, including cross-border firms, are showing strong signs of recovery.
Average profits per equity partner have slumped nearly 40% since their 2008 peak, from £104,000 to £64,000 in 2010, according to the Law Society of Scotland’s annual Cost of Time survey. Last year saw an 11% fall on 2009, when profits averaged £72,000.
However, ten-partner-plus firms, of which 10 responded to the survey, saw profits bounce back in 2010 to £178,000 per equity partner. This was a 31% rise on 2009, but still well short of the 2008 high of £221,000.
By contrast, sole practitioner and five-nine partner firms continue to suffer. Sole practitioners saw average profits fall from £55,000 to £49,000, with those in Glasgow and Edinburgh worst hit, registering 24% and 12% falls respectively. Scottish firms with five to 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 of Scotland, said: ‘This year’s Cost of Time survey shows the experiences 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.
‘Solicitors will need to make sure that they plan ahead in order to make the most of any new business opportunities in a year which will see the introduction of alternative business structures which will allow solicitors to set up in partnership with others. 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.’