Profits in law firms grew for the third consecutive year in 2016 - but the gap between the large firms and the rest is widening, an annual market survey suggests. 

The latest annual Legal Benchmarking Report from business advisory group MHA finds that the gap in growth rates of firms with more than 25 partners compared with those of mid-tier firms (11-25 partners) continued to widen in 2016. Large firms are now nearly three times the size of their mid-tier competitors. The trend for mergers in mid-tier and large firms appeared to accelerate during 2016, and is expected to continue through 2017.


Most firms saw increases in net profits of between 2% to 5%, their highest levels in the past three years. For large firms the increase in profits averaged 4%, fuelled by a 20% increase in fee growth in the year and greater control on spending. Firms with between two and 10 partners achieved an increase of 5%. In marked contrast, sole practitioners showed a 4% decrease in net profit. 

Average income per equity partner in larger firms jumped to nearly £1.4million, from around £750,000 in the previous two years. 

The risk of inadequate succession planning continues to be a challenge for the sector, the report states. ’As the financial performance rates of small and larger firms widen, it will become increasingly harder for small firms to attract new equity partners without adequate levels of profit available to be shared. For sole practitioners, an ageing equity partner base and the lack of appetite from younger solicitors to become sole practitioners in the future, is placing a greater emphasis on succession and investment in the fee earning staff.’

Karen Hain, head of the professional practices sector at MHA said: ’While our report reveals a sector in financial health, with performance in 2016 pointing to a positive outlook for the future, firms continue to face a challenging environment. With potential cost implications from areas such as the government’s new apprenticeship levy, pension auto enrolment, the national living wage and business rate assessments, firms will need to maintain control of expenditure if profitability is to be increased.’