Record fee earning year for law firms but Yorkshire practices fall behind

THE UK’s top 10 law firms may have enjoyed another record fee earning year but Yorkshire practices have had a mixed result.

According to PricewaterhouseCoopers’ (PWC) latest annual survey of the financial performance of law fims, 2008 was a year of strong fee income growth, although a positive first half performance masked a significant weakening in the last two quarters.

Average fees per partner for the top 10 firms reached almost £2.9m with the 11 to 25 group managing an average of £1.8m.

More than one quarter of firms in Yorkshire grew fees per partner by more than 15%, however one third reported a fall in this statistic.

Top 10 firms reported an average fee per fee earner of £360,000 for the top 10 – some 35% higher than for the 11 to 25 bracket. The average for Yorkshire firms is significantly below this level, at £142,000.

Profits per partner for top 10 firms were in excess of £1.1m, almost 28% up on the 2007 figure, while average profits per partner for Yorkshire firms were a creditable £536,000.

Average chargeable hours for firms as a whole however were either flat or showed only a small increase for all sizes of firm. Interestingly chargeable hours in Northern firms were higher than those achieved by comparable firms in other regions.

The survey also showed that partner headcount continues to be managed carefully with as many Yorkshire firms reducing partners as those with an increase.

However staff costs appears to be an area for Yorkshire firms to focus on in the future. While many firms were able to reduce their average staff cost to fee ratio, only 40% of Yorkshire firms reported this ratio below 40%, down from 75% in 2007.

Staff turnover also declined during the year, although attrition rates for three to five years post qualificationremained high at 27% in the top 10.

The high staff turnover rates in prior years had a real impact on firms’ profitability however.

PWC said it was surprised to an increase in secretarial support numbers, which has outstripped the increase in fee earners at a time when many firms have been trying to reduce support costs.

David Thurkettle, who leads PWC’s professional partnerships advisory team in the North, said that clearly law firms would not be immune from the effects of the economic downturn.

He warned that it seemed likely that 2009 would see reductions in headcount particularly with regard to support staff although with fee earner recruitment at record levels no doubt fee earner headcount would also be reviewed.

He added: “However, this year’s results are striking in that they highlight how effective financial and operational planning have enabled some firms to move significantly ahead of the competition whilst others may fall behind.

“Firms in Yorkshire have mirrored this trend but it is still heartening to see that average profits per partner in these firms were in excess of £0.5m.”

Mr Thurkettle said that with the UK almost certainly heading into prolonged recession those firms with an effective management team would be stronger placed to manage their way through it.

“There will clearly be opportunities for firms in areas such as litigation and insolvency, but conversely there will also be real challenges in other disciplines such as real estate and transactions,” he continued.

“Our survey found that firms are viewing the future with increasing pessimism as profits per partner and the ability to convert profits to cash are expected to come under pressure in many firms.”