One in five sole practitioner firms has ceased trading in the past five years—and the burden of compliance is a major factor, according to accountants who specialise in law firms.
In 2012, there were 3,400 sole practitioners. Today, there are 2,600, representing a drop of 22%.
To put those figures into perspective, that means sole practitioners make up a quarter of all law firms, compared to nearly a third five years ago.
According to Hazlewoods, accountants and business advisors for the legal profession, the comparatively heavy compliance burden for sole practitioners may be to blame. It points out that a sole practitioner will usually take on the roles of both Compliance Officer for Legal Practice (COLP) and Compliance Officer for Finance and Administration (COFA) roles. They are personally responsible for ensuring the firm complies with all anti-money laundering and regulatory requirements, client file reviews, overseeing accounting systems and ensuring staff are properly trained.
To avoid this, many sole practitioners have joined “virtual” law firms so they can share the administrative burden as well as benefit from other shared resources, according to Hazlewoods.
Andy Harris, director at Hazlewoods, said: “It just isn’t as sustainable to be a sole practitioner as it once was. The environment for generalist sole practitioners is far harder than it was.
“Sole practitioners are seeing significant amounts of their time being eaten up by making sure they are complying with regulatory requirements—and that’s time they can’t spend on fee-earning work. The reality is that the smaller the firm, the bigger the compliance burden as a percentage of billable time. Sole practitioners just don’t have sufficient economies of scale.”
“Although the Solicitors Regulation Authority has recognised this and is taking steps to reduce the size of its Handbook, those changes are still at least 18 months away.”
