Firms spending less on referral fees in PI, survey suggests

On the rise: fee income up more in PI than any other area

Referral fee payments as a proportion of personal injury (PI) fee income in the highest-earning 5-10 partner firms fell by more than 50% last year, although across all practices it averaged almost 10% of total earnings, according to a survey.

The annual financial benchmarking survey of 166 medium-sized firms by the Law Society’s law management section (LMS), found that overall PI and clinical negligence fee income held up well last year and slightly better than other areas of work.

In 2012 it was 107.1% of the previous year’s total, compared to 106.7% in residential property – the next best performing specialism.

As reported yesterday on our sister site Legal Futures, the survey – which was compiled by accountants Hazelwoods and sponsored by Lloyds TSB Commercial – found that median practice income as a whole grew by 3.6% between 2011-12, despite the tough economic conditions.

In PI and clinical negligence the gap between the highest and lowest-earning equity partner was greater than any other specialism. Fee income for the top 25% was £1,115,000, compared to £385,000 for the bottom 25%, with the median at £601,000. The next greatest disparity was between top and bottom earners in residential property, at £883,000 and £310,000 respectively.

Across the practices polled as a whole, the highest and lowest fee-earners in PI and clinical negligence brought in fees worth of £169,000 and £102,000 respectively, with the median at £130,000. Meanwhile, the number of fee-earners per equity partner was 3.2. Total salary costs, including notional salaries as a percentage of fee income, was 40.5% . This compared favourably with other specialisms.

With an eye on the impending ban on referral fees, the LMS survey asked practices how much they pay currently in referral fees each year. A median of 9.7% of fee income from PI and clinical negligence work was paid to providers, which it said was “down slightly on last year”.

There was a very significant drop in the amount paid out in referral fees by the highest-earning 25% of firms of between 5-10 partners. They paid out a massive 40% of their PI fee income in 2011 compared to 17.6% in 2012 – which brought them back onto a par with the median paid out across the top-earning 25% of practices of all sizes. Among the lowest PI fee-earners, practices paid out just 2.4% in referral fees.