The legal profession has a money problem, with even highly paid solicitors struggling with budgeting and financial planning. The Brief hears from financial experts, who diagnose the problem and offer a range of tips.
It is hard to think of a profession, or indeed occupation, in which the range of remuneration is so wide as the law. The gulf between the earnings of a solicitor working for a provincial Legal Aid practice and a corporate partner in the London office of a US firm is almost unimaginably wide.
However, whatever their earnings, all lawyers need to budget today and provide for their futures. And simply earning a lot of money today is no guarantee of financial security tomorrow (just ask the 40 per cent of former professional footballers who are estimated to have become bankrupt within five years of retirement).
Lawyers are literally paid to be the expert in the room, and many of them experience shame about personal finances and reluctance to seek out help.
The Brief spoke to Carla Hoppe, a former solicitor who went on to found the financial education platform Wealthbrite, and Colin Tomlinson, chartered financial planner at Pareto Financial Planning (both pictured), to find out how lawyers can ensure their money works for them now and provides them with a secure future.
Unique needs
Hoppe and Tomlinson both agree that lawyers have unique characteristics when it comes to financial management and planning.
Tomlinson says, “What makes their needs unique is the combination of early earning potential, complex career progression (particularly at partnership level), and irregular cashflow once they become self-employed as equity partners or consultants. Their needs aren’t just about maximising wealth, but about protecting it, structuring it tax-efficiently, and adapting plans as their roles and responsibilities evolve.”
For Hoppe, these “hard” facts are compounded by psychological factors, including a stressful working environment in which client needs often take priority over personal wellbeing and “life admin”, and a “culture of expertise”.
Hoppe explains: “Lawyers are literally paid to be the expert in the room, and many of them experience shame about personal finances and reluctance to seek out help, including from financial advisers.”
A Financial Wellbeing in Law Survey caried out by Wealthbrite last year also found that 60 per cent of lawyers felt under pressure to spend beyond their means. Thirty-six per cent of respondents had less than £1,000 in savings and 53.8 per cent said either “no” or “don’t know” when asked “Are you currently investing?”
Day-to-day budgeting
The Wealthbrite financial wellbeing survey found that 48% of lawyers relied on credit to pay for essentials because they had run out of money, compared to a national average of 20 per cent (according to the ONS and Money and Pension Service). This was exacerbated by the lack of savings among lawyers.
First, practise mindful spending. Budgeting isn't all about denying yourself.
Hoppe recommend that lawyers at the beginning of their careers (or later if necessary) should get their “financial foundations in order” as early as possible.
She says, “First, practise mindful spending. Budgeting isn't all about denying yourself, if you struggle to stick to a budget or don't have one then try using different pots to manage money – a pot for holiday spend, one for Christmas savings, a monthly fun fund, household bills
“By giving your money a purpose it can be easier to assess what you are spending money on and why. Clarity is the first step towards confident behaviour change.
“Secondly, start building up an emergency fund. If you're overwhelmed by the idea of saving three months of your salary start by building up a pot of £1,000 and watch your confidence and your financial buffer grow.”
Neglected elements
Beyond day-to-day budgeting, lawyers also need to focus on medium- and long-term financial if they are to enjoy the security that their incomes should, theoretically, provide.
Tomlinson says lawyers commonly neglect the following areas:
- Income protection in the event of being unable to work through accident or sickness, despite working in a high-stress occupation.
- Pension contributions, particularly if equity partnership means they are not auto enrolled into workplace schemes.
- Early-stage investment planning: many lawyers focus on property and cash savings instead.
- Exit planning. “Partners are so focused on getting in, they forget to think about getting out, but capital repayment, goodwill terms and retirement funding need early consideration,” Tomlinson says.
Equity partnership
Solicitors earlier in their careers might see equity partnership as the answer to their financial prayers but it comes with its own financial challenges.
Tomlinson says that the transition to self-employment, with responsibility for your own tax payments catches many partners out. He also points to other challenges, including:
- The requirement to invest capital into the firm, often via a loan.
- Exposure to business risk and liabilities.
- The need for more advanced cashflow and tax planning.
- Loss of employer pension contributions and benefits.
“Salaried partners or high earners may have similar income levels but are generally still on PAYE and shielded from many of these complexities,” he says.
Lawyers, especially those on partnership tracks or in high-earning roles, should consider IHT and legacy planning much earlier than previous generations.
Hoppe expands on this, saying: “There is very little education or support made available to lawyers about the financial realities of self-employment: everything from losing holiday and sick leave benefits to the need to set up your own pension or retirement savings account, insurance provisions and the tax implications.
“We are aware that while some law firms withhold partner drawings to allow for smooth tax bill payments, not all do and that there are instances of partners across the city being caught short on the cash required to settle their tax bill - often plugged by expensive lending.”
Legacy planning
Tomlinson says that, beyond their own financial security, the current situation (with Inheritance Tax thresholds frozen and a range of new assets, including business shareholdings and unused pension funds, set to fall within the scope of IHT soon) means, “Lawyers, especially those on partnership tracks or in high-earning roles, should consider IHT and legacy planning much earlier than previous generations.
“This isn’t just about wills – it’s about structuring assets, using allowances wisely, and reviewing plans regularly to stay ahead of legislative shifts. Planning early and revisiting it often is key to avoiding tax inefficiencies and ensuring long-term financial security.”
Trust issues
The results of Wealthbrite’s financial wellbeing survey were worrying for lawyers themselves and for financial advisers.
Sixty-one per cent of layers, and 72 per cent of junior, rated their own financial skills as average or below. However, 70 per cent also ranked sources other than financial advisers as their go-to for financial advice and guidance, with 20 per cent saying they did not speak to anyone at all about their finances.
“Lawyers are naturally sceptical of being sold to, which has in my experience tainted their view of financial advisers,” she says.
To help overcome this scepticism it could be worth remembering that most private client departments work with financial advisers, making and receiving referrals on a regular basis. Speaking to private client colleagues about who they rate in the world of financial advice might not be the worst place to start – after all, they consider advisers to be good enough for the firm’s most valued clients, who often have very complex needs.
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Financial Wellbeing in Law Review 2024
Connect with Carla Hoppe via LinkedIn
Connect with Colin Tomlinson via LinkedIn
