A recent study conducted by accountancy firm Hazlewoods has found that the number of sole practitioner law firms in the United Kingdom has fallen by 22 per cent over the last five years. While sole practitioner firms accounted for around one-in-three law firms in the UK five years ago, they now account for just one-in-four. Such firms appear to have been dropping out of the market at a relatively steady pace, falling from a total of 3,377 firms in 2012 to 2,856 in 2014, and then to 2,627 this year.

Mounting regulatory burden

One of the key factors stifling the success of sole-practitioner firms is the growing volume of regulations affecting law firms in the United Kingdom. In the case of sole practitioners, the burden of meeting a wide range of regulatory requirements often falls on just one set of shoulders, warns Hazlewood. ‘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 that they can’t spend on fee-earning work,’ said Hazlewoods director Andy Harris. ‘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.’ For example, firms are currently required to have both a compliance officer for legal practice (COLP) and a compliance officer for finance and administration (COFA), both of which must often be taken on by the same person in sole practitioner scenario.

‘Virtual’ firms: The best of both worlds?

In a climate where many sole practitioners are struggling to stay afloat, many are turning to ‘virtual firms’ as a way of minimising the regulatory and administrative burden whilst also maintaining their flexibility and independence. Virtual firms help eliminate the overheads associated with running your own practice by granting lawyers access to an ‘umbrella’ of support resources, including compliance, IT, accounts, marketing and other back office support. Meanwhile, stand-alone lawyers can leave behind hours of detangling red tape and instead focus on fee earning. ‘Some may see this as the best of both worlds,’ said Mr Harris. ‘[It enables] them to operate as a self-employed consultant or work from home or part-time, while enjoying the perks that a bigger firm offers such as extensive resources, better cost-to-earnings ratios and access to a bigger market.’