2010 Fee StructureSRA Board briefing

15th February 2010V1.0

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Why a new fee structure? The current system is unfair and creates anomalies The Legal Services Act 2007 changed the Law Society's statutory powers to

require it to adopt firm-based regulation as well as regulating individual solicitors

It is estimated that between 60% and 80% of SRA effort is spent on firms The current fee charging system is disproportionate for in house solicitors

providing services to the unregulated body that employs them

Recommendation from Hunt Review

I recommend that the practising certificate fee should be clearly and, so far as possible, equitably split between an entity element and an individual element. I recommend that in house solicitors should pay only the individual element

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Principles for new fee structureIs it fair to fee payers? (Proportionate)

Is efficient and economic to administer (Reduces administrative burden)?

Ensures a predictable income to meet the costs of regulation? (Consistent)

Is stable - charges should not vary considerably year on year?

Is as simple as possible? To enable the regulated community to predict their likely fees

Is based on data that can be verified?

Ensures that where possible the costs of particular processes that are not of general application should be borne by those making such applications on, as far as possible, a cost recovery basis? (Targeted)

Takes some account of ability to pay, in particular in relation to small and new businesses? Fees should not be a deterrent to new entrants (Proportionate)

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Recommended Fee Structure** Please note that figures and bandings are only indicative

Band Min TurnoverPay % of Turnover

Firm Count

(10927)

A £0 0.67% 2294B £20,000 0.59% 2606C £150,000 0.54% 2733D £500,000 0.48% 1355E £1,000,000 0.45% 1479F £5,000,000 0.41% 224G £10,000,000 0.35% 163H £50,000,000 0.31% 38I £100,000,000 0.10% 29J £400,000,000 0.08% 6

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Firm Fees

Regulatory Fees

40% Individual60% Firm

Compensation FundFees

50% Individual50% Firm

Individual Fees

£9 / Solicitor £140 / Entity holding client money

£511 / Solicitor

Only discount available:Maternity discount @ 50%

Additional Flat Fee per foreign branch office

We are currently working with a 40/60 split - this could be phased lower over time.For 1st year, result is a shift in fee burden of approximately 15% from in-house onto private practice firms

We recommend making significant changes to the make-up of the Compensation Fund Fees:

There will be winners and losers as a result of this fairer fee policy

High Level Impact

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Individual Firm Average Firm Fee burden Increase

40% 60% 15%

30% 70% 18%

20% 80% 21%

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Winners Losers

Firms of any size with relatively low revenue per PC Holder Firms of any size with relatively high revenue per PC Holder

Low revenue sole practitioners

Current approach Recommended Approach

Significant proportion of fees are to pay indirect costs Shift indirect costs to regulatory fund to increase transparencyFor 1st year, exclude cost of interventions / investigations in order to help reduce Comp Fund reserves to approved level.

Largest firms pay disproportionately high contribution given that the grants are typically against the smallest firms

Only fees are individual based rather than firm based and the method for calculation is complex (whether hold client money and number of PCs held)

Flat Fee per solicitor, Flat fee per firm that hold client money. This is the simplest model and for the next year and is more proportion. It works well as the value is low

Initial Impact Analysis

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CountOLD NEW

Reg Income CF Income Reg Income CF IncomeFirms: 10,892 £727,450 £0 £71,855,257 £1,000,000

Total PCs within Firms: 80,610 £92,677,979£16,704,265

£41,161,958 £746,430REL/RFLs: 977 £383,900 £498,886 £9,047

In House PCs: 27,384 £28,137,719 £2,847,216 £13,430,870 £253,570

TOTAL PCs:£121,927,048 £19,551,481 £126,946,972 £2,009,047

108,971 £141,478,529 £128,956,019

Approx £12.5m reduction in Compensation Fund reserves, which are currently £25m higher than target

Partner Banding

DecreaseIncrease

<15%Increase

>15%Increase >

50% Old Total New TotalCombined

Old %Combined

New %Variance (in

points)Sole Practitioner 65.8% 6.6% 7.6% 19.9% £7,603,424 £8,809,530 7.0% 7.6% 0.7%2-4 Partners 71.0% 11.2% 9.6% 8.2% £23,321,815 £26,682,616 21.3% 23.1% 1.8%5-10 Partners 68.8% 14.2% 9.4% 7.6% £16,884,735 £17,148,548 15.4% 14.9% -0.6%11-25 Partners 63.0% 16.6% 11.7% 8.8% £14,150,610 £14,444,775 12.9% 12.5% -0.4%26-80 Partners 54.0% 19.4% 9.4% 17.3% £20,383,110 £20,813,330 18.6% 18.1% -0.6%81+ Partners 48.2% 23.2% 25.0% 3.6% £27,007,335 £27,330,480 24.7% 23.7% -1.0%

Please note that this information is based on indicative bandings and figures

Worked Examples

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Partners: 1 Partners: 1 Partners: 1 Partners: 1 Partners: 1PC Holders: 1 PC Holders: 1 PC Holders: 1 PC Holders: 1 PC Holders: 1Revenue (k): £19.9 Revenue (k): £141.0 Revenue (k): £174.0 Revenue (k): £348.0 Revenue (k): £3,000.0Client Money: No Client Money: no Client Money: Yes Client Money: Yes Client Money: Yes

Old Fee: £780 Old Fee: £1,370 Old Fee: £1,660 Old Fee: £1,660 Old Fee: £1,660New Fee: £653 New Fee: £1,368 New Fee: £1,660 New Fee: £2,600 New Fee: £14,821

Partners: 1 Partners: 1 Partners: 3 Partners: 3 Partners: 3PC Holders: 3 PC Holders: 3 PC Holders: 3 PC Holders: 3 PC Holders: 18Revenue (k): £0.0 Revenue (k): £170.0 Revenue (k): £222.0 Revenue (k): £888.0 Revenue (k): £27,900.0Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes

Old Fee: £2,450 Old Fee: £4,220 Old Fee: £4,890 Old Fee: £4,890 Old Fee: £24,090New Fee: £1,670 New Fee: £2,679 New Fee: £3,011 New Fee: £6,375 New Fee: £115,861

Partners: 6 Partners: 6 Partners: 6 Partners: 12 Partners: 11PC Holders: 6 PC Holders: 14 PC Holders: 17 PC Holders: 25 PC Holders: 32Revenue (k): £1,350.0 Revenue (k): £1,470.0 Revenue (k): £3,550.0 Revenue (k): £2,580.0 Revenue (k): £12,400.0Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes

Old Fee: £9,600 Old Fee: £19,840 Old Fee: £23,680 Old Fee: £35,660 Old Fee: £44,330New Fee: £10,047 New Fee: £14,746 New Fee: £25,666 New Fee: £25,460 New Fee: £68,889

Partners: 20 Partners: 20 Partners: 57 Partners: 136 Partners: 200PC Holders: 42 PC Holders: 44 PC Holders: 57 PC Holders: 599 PC Holders: 350Revenue (k): £5,700.0 Revenue (k): £10,300.0 Revenue (k): £47,100.0 Revenue (k): £114,000.0 Revenue (k): £150,000.0Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes Client Money: Yes

Old Fee: £59,740 Old Fee: £62,300 Old Fee: £89,670 Old Fee: £806,340 Old Fee: £494,240New Fee: £48,058 New Fee: £67,778 New Fee: £203,336 New Fee: £664,267 New Fee: £570,814

Please note that this information is based on indicative bandings and figures

Key Consultation Activity

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ActivityConsultation Paper 19: Focus on agreeing principles and preferences on model for firm fees

Presentation to External Implementation Group

Workshop with cross section of Top 100 Firms

Consultation Paper 21: Presentation of preferred model, consideration of options for compensation fund, more detailed impact analysis with worked examples, consideration of renewal process

Lawyers with Disabilities Division workshop

Sole Practitioners Group workshop

Joint Workshop inviting special interest groups (low attendance but two members of EIG attended with very useful feedback), Association of Women solicitors were invited but chose not to participate

Junior Lawyers Division workshop

Conveyancing Solicitors workshop

Crime and Civil Practitioners workshop

Plan for follow up workshop with City of London Top 100 law firms before 13 th February

Consultation Paper XX: Detailed consideration of Appeals process

2 Joint workshops on Appeals process to be run alongside Appeals process consultation

Completion of an Equality Impact Assessment

FSPB Meetings Date10am -12:30pm 18th Feb

11am -1pm 25th Feb

11am -1pm 30th Mar

Generally, there was recognition that the new fee structure would be fairer for in house solicitors As expected, a variety of views exist around the fairest fee structure, however the majority of respondents understood the

rationale for the use of the turnover (gross fees) model due to its facility to consider different firms’ “ability to pay” Those firms who disagreed were typically those who perceived that they would be directly negatively impacted, including the

City of London Law Society on behalf of some larger firms. We are running a workshop with this group to explain the rationale, reduce confusion & provide more information about how they will be impacted

The proposed fee structure is recognised as being likely to have a net positive impact on equality groups such as Disabled, BMEs, etcetera. Their average gross fees are lower than average and their fees will be consequently lower

Many questions around whether this is a covert attempt to raise the fees. Our response was a categorical ‘No’ Many questions around whether this is an attempt to shift the burden onto sole practitioners away from City Firms. Our

response was a categorical ‘No. The turnover bandings will be set to ensure that with the new model, approximately the same proportion of the fees will be paid by firms of different sizes as today’

Concerns from multiple parties around impact on Legal Aid firms, especially those who are heavily geared to non PC holding fee earners; variable views on how important this is given that these firms have higher regulatory risk

Need for an Appeals process as using a one stage process will result in turnover figure being out of date – however general preference for one stage process as this provides firms with ability to plan and save for the renewal process. Variety of views around whether an appeals process is required after the 1st year

Lots of feedback around need for significant communications to the profession as early as possible, especially for those firms who will be experiencing a significant increase

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Key Consultation Outcomes