‘Why are solicitors so expensive?’
We often see reports of solicitors’ clients complaining about how much money they have had to spend on their legal fees to fund a particular case. If you go on to solicitors’ websites then as of 2019 most, if not all, will publish some kind of price guide to the sorts of costs you can expect to be paying.
However, rates are often quoted as hourly rates rather than per total cost of case, partly because in a number of cases it is impossible to predict the cost, but also because solicitors don’t want to scare the living daylights out of their potential customers.
Very often you will see hourly rates of £250-£350 per hour and even £150 to £200 an hour for a trainee solicitor or recently qualified solicitor to work on a case. These sorts of prices can look to be extortionate and pretty astronomical compared with other areas of work in differing professions. And in fact we are often asked the question as legal recruitment consultants: why are solicitors’ hourly rates so expensive?
Professional Indemnity Insurance
One of the key reasons that solicitors have to charge a high hourly rate is the sheer cost of professional indemnity insurance. This is the insurance that covers them in the event of a client making a claim for negligence against their own solicitors. The cost of this can be mind-blowing, particularly for large conveyancing firms where there have been claims in the past.
Many years ago there used to be a Law Society scheme that regulated how much professional indemnity insurance premiums cost per law firm, but this ended some years ago and premiums can be completely random. In fact, some firms over the years have found that they have been unable to get professional indemnity insurance at all and have had to close because of this. Others have seen hikes in insurance premiums that have resulted in near-bankruptcy for the partners of the law firm if they were to continue.
The reason hourly rates are dependent on professional indemnity insurance is because it represents one of the largest overheads in a law firm. The typical cost for a small litigation solicitors’ firm can be between £5,000 and £10,000 per year.
10% Turnover Spent on Insurance
This means that if you are a sole practitioner or two partner law firm with a turnover of around £100,000, then 10% of your turnover is going to be eaten up through your professional indemnity insurance. For conveyancing firms the premiums can be astronomical. We have seen examples of firms paying between £150,000 and £250,000 per year in insurance premiums when their turnover has been less than a million. Very often this is because the law firm are undertaking high risk conveyancing, and it is high risk because the firm have had claims against them in the past which has resulted in high insurance premiums going forward. Conveyancing is not an area where large fees can be charged because it is so competitive, but in litigation and corporate commercial work prices can vary quite dramatically for the cost of a solicitor to deal with a case.
Litigation and Commercial Work at Lower Cost
If you instruct one of the Central London solicitors’ firms then you can see hourly rates of £400 or £500 per hour, but there are law firms out there doing company commercial work, (i.e. working on behalf of businesses of all shapes and sizes) for less than £150 per hour.
Furthermore, there are now numerous platforms whereby you can sub-contract the legal expertise for less than £75 an hour and be working with solicitors of the same calibre as those working at firms charging out at £400 an hour. Interim Lawyers is a good example of this.
Avoiding the Insurance Cost
This is why the rates can be cheaper. If you are a small business looking to use a solicitor then you do have the option to work with a consultant lawyer rather than a firm of solicitors. This will reduce the cost quite often by up to 75% per hour, because the consultant solicitors will not have their own insurance.
This does mean that you run the risk that if the case doesn’t go well and you want to sue your solicitor because you believe them to have been negligent in their advice, as you will be unable to do this. This is the price you pay for using a consultant at a much cheaper rate.
Solicitors firms have traditional overheads to pay, including staff, office rent and the various professional costs of maintaining practising certificates and training. In all the accounts we have seen for solicitors firms, these tend to eat up a substantial amount of profits, and for a good number of high street firms we’ve always been surprised at how little profit the firms are able to make.
This is not the same for the large litigation practiscs undertaking bulk work, such as personal injury firms dealing with holiday sickness claims or personal injury matters, who traditionally are able to generate huge amounts of income.
Neither is it relevant for commercial outfits undertaking corporate commercial work at a high level for large multi-national blue chip companies.
However, the vast majority of firms working in the traditional sense as partnership or limited company with less than 25 solicitors, will not have particularly high profit margins, and their costs will eat into a substantial amount of their turnover.
It does remain however the case that professional indemnity insurance is one of the key factors as to why the hourly rates can be so high. Similarly to the professional indemnity insurance though, if you use one of the new platforms for procuring legal advice then you will find the hourly rate cheaper simply because the law firm will not have the same overheads that the traditional law firms have, because their lawyers will not work out of an office and neither will they have high staff levels, because the lawyers will do their own admin work, or most of it. These firms will carry professional indemnity insurance but their hourly rates will be lower because they have lower overhead costs.
We rarely see any other costs on the books of solicitors firms that would indicate why they charge the rates they do, other than most solicitors firms do not generate the amount of work that the general public probably think they do, and that is why their hourly rates have to be high, to cover their costs.
In summary, solicitors firms do not charge huge amounts of money because they are making large profits. Very often solicitors’ firms carry the brunt of negative publicity in the press, but the reality is very different.
Interim Lawyers is our platform for low hourly rates solicitors working for business at a substantially cheaper cost than you would see if you approached a traditional solicitors firm.
Jonathan Fagan is MD of Ten-Percent.co.uk Limited and TP Recruitment Limited, a set of websites involved in a range of recruitment work. Jonathan has been running small businesses for over 20 years and has a number of interests and investments in companies as diverse as transcription, legal recruitment and a bit of marketing. He is an author of a number of guides and books, together with a children’s novel. In his spare time he enjoys playing golf, cricket, coaching girls’ football, operating a parent taxi, lots of running and paddleboarding on Bala Lake and the River Dee. He is a strong believer in a good work-life balance and regular blogs on making money vs enjoying life. Jonathan’s website is https://www.jonathanfagan.co.uk