That’s the key finding from a report looking at the costs of running a legal practice, based on financial data from a range of practice types and sizes across Aotearoa New Zealand. Released today by the New Zealand Law Society Te Kāhui Ture o Aotearoa, the report was undertaken with KPMG and outlines the operational costs and challenges associated with running a legal practice in 2023, as well as the costs and challenges specific to legal aid providers. 

The Law Society anticipates that, in addition to providing an evidence base from which to advocate for improvements to the legal aid system, regulation, and more, the report will be of interest to lawyers considering moving into practice on their own account, as a barrister sole, or changing their practice in some way. 

The report has been made available in full for the profession and the public.  

Key findings from the report include: 

• The ratio of billable vs non-billable hours has decreased by 4.2% over the last three years. This downward trend has been experienced by all practice types. 
• Staffing challenges: practices are facing significant challenges in attracting and retaining suitably qualified and experienced staff. This is the primary operational cost incurred, and the overhead that has increased at the highest rate. 
• Absorbing costs: practices are absorbing increasing costs they have no control over including travel costs, accounting and advisory costs, technology and software upgrades. 
• Financial and insurance costs: these are a significant operational challenge. The costs of professional indemnity insurance have particularly increased and barristers, sole practitioners, and small law firms are more likely to be impacted. On average, professional indemnity insurance costs have increased by 27.3%. For small law firms, the increase was 33.1%. 
• Regulatory and compliance burdens: these were reported by all practice sizes. 14% of practices reported this as their primary operational challenge, with the majority of those citing AML/CFT.  

Operational costs and challenges of legal aid providers 

Research specific to the operational costs and challenges of legal aid providers was also undertaken, including case studies based on the invoices of recently completed legal aid files. The report shows that administration and client needs – in conjunction with inadequate remuneration and higher overheads – are reducing the productivity of legal aid lawyers and exacerbating operational challenges. 

• Non-legal aid providers recover 61% of their time, on average 1,031 hours per year. For legal aid providers this drops to 53.3% and 807 hours per year. 
• Remuneration of legal aid work is an ongoing issue, however legal aid providers also reported other challenges that need to be addressed. In particular: 
  • Invoicing processes not integrating with firm software, and duplicate recording is required. Billing requirements result in frequent small invoices, and processes are manual. 
  • Applying for grants and amendments to grants, which is not remunerated, is time intensive. 
  • Responding to client needs, which are typically greater for legal-aid clients who tend to have more complex personal concerns. More time and support is required, and client management is often not remunerated.  

What happens next? 

The research will be used to support the Law Society’s ongoing advocacy for improved access to justice, including in the areas of legal aid and the duty lawyer service, by providing robust data around the viability of this essential work.   

Already, the Law Society has briefed the Legal Services Commissioner and Ministry of Justice on key findings related to the legal aid regime. The report raises several areas of improvement that would be meaningful to legal aid providers, and which should be capable of progression irrespective of budgetary constraints.  

Several comments were made within the survey about delays in the payment of Crown Accounts (this includes things such as lawyer for child, counsel appointed to assist). The Law Society has written to the Ministry of Justice about this, and has discussed with the Ministry’s Chief Executive.  

In light of the concerns raised by respondents, we’ll soon commence work to identify specific challenges relating to AML/CFT compliance, with a view to advocating for changes that can maintain the integrity of the scheme while reducing the burden on practices. Practices who would like to contribute to this are encouraged to get in touch via lawreform@lawsociety.org.nz.  

Read the full report here.