The 'jaws are closing' on law firms' profitability, research has revealed, as practices reported a significant drop in equity partner fee-income and rocketing employment costs.

A survey by the Law Society's law management section showed that the median figure for fee-income per equity partner dropped by 8% to £434,640 last year.


The fall is a reversal of the previous two years, which had seen increases of more than 9%. However, the median income per fee-earner rose by 8%.


The survey of 176 firms, which were mostly small or medium-sized, also revealed an increase of 39% in the median cost of fee-earners.


Management consultant and former section chairman Nick Jarrett-Kerr said: 'Overheads are going up all the time, as firms see the jaws closing on their profitability. A lot of firms are spending much more money on premises, and costs are rising faster than revenue.'


Across the board, equity partners in firms of 11 to 25 partners received a median fee-income of £455,919, compared to £734,026 for 25-partner-plus firms, and £383,403 for firms with two to four partners.


High street areas of practice performed surprisingly well. While business, commercial affairs and commercial property saw the greatest fees, personal injury, clinical negligence and housing also provided good returns. Mental health was the least remunerative work.


Management consultant Alan Hodgart said: 'Clients are putting pressure on prices, and it is hard for smaller firms to increase their gearing significantly to address this.'


The survey will be available from the section next week.


Link: www.lms.lawsociety.org


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