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Law Firms look to New Ways of Working as Numbers Shrink

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Latest statistics from the Solicitors Regulation Authority (SRA), who are responsible for the regulation of solicitors and law firms in England and Wales, confirm what many in the profession have been predicting for a while; that law firms are accelerating the consolidation process as they begin to embrace new ways of working.



The SRAs numbers indicate that the total number of law firms in England and Wales is now less than 10,000, with 9974 firms being listed as ‘active’ as of April 2021. Whilst the rate of the decline in law firm numbers remains slow, with the total being 2% less that in April 2020, this total is the lowest recorded by the regulator since they started collating such data in 2010.

The data also shows that the number of sole practitioner (i.e. a law firm with just one qualified solicitor) and traditional partnership firms continue to decline, with sole practitioners now making up 20% of the total (1,966 practices), down from 34% of the total in 2011. In the same period, firms based on the traditional partnership model have dramatically fallen from 3,374 to just 1,401, and make up only 14% of all firms. Incorporated companies accounted for 51% of all firms in May 2021, while there are 1,506 LLPs (15%). Overall, the number of law firms closing is now regularly exceeding the number of openings each month, with 557 firms closing in the year to the end of February.

Industry observers have also commented on the increase in merger activity in the sector. Increased regulatory demands, a tightening insurance market and a continued increase in the number of consultancy model firms, who often pay out up to 75% of billings, has resulted in many younger entrepreneurial solicitors who would normally have set up on their own now joining those firms instead. Managing to survive the Covid lockdown in the past 18 months, combined with an increase in the costs of compulsory professional indemnity insurance premiums has also led to smaller firm owners now wanting to exit the sector. Many are also predicting further and more rapid increases in acquisitions and consolidation once the current conveyancing ‘bubble’ – a result of the governments Covid-related stamp duty incentives – bursts later this year.

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