Eddie Goldsmith , senior partner, Goldsmith Williams is concerned by the Law Society’s volte face
The Law Society has recently started lobbying the Government and the Legal Services Board to ban the payment of referral fees by the legal profession. If successful, this move could bring an end to the payment of fees for referring any type of legal work including conveyancing, will writing and claims management cases.
It seems strange, having approved the payment of referral fees just five years ago, that the Law Society has now done a u-turn and is campaigning for their abolition. The payment of fees or commission for the introduction of new business has been a fact of commercial life in most other business sectors for donkey’s years, with no-one having a problem with the practice. So why has the Law Society suddenly decided to make a big deal out of referral fees?
I suspect that the answer has a great deal to do with the way in which the claims management industry has driven up the level of fee payments to, in some instances, several thousand pounds. Not only has this left a nasty taste in the mouths of many lawyers, but it has also raised concerns about transparency, the reduction of consumer choice and the need to ensure consumers are not disadvantaged in any way.
These concerns are, of course, extremely valid and I have no doubt that they will be front of mind when the Solicitors Regulatory Authority (SRA), which has the power to change the rules, reviews feedback from the consultation process which is about to take place.
No doubt the reality is that it will be very difficult to roll back the tide and ban the payment of referral fees for legal work, not only because they have become a normal part of working life for lawyers and intermediaries, but also because so many law firms depend on the business that the payment of such fees generates.
If the powers that be are primarily concerned about potential consumer detriment, then they should bear in mind that all law firms are bound by a strict Code of Practice which ensures clients’ best interests always come first and that decisions relating to clients are not influenced by fee payments.
What’s more, lawyers (and financial intermediaries for that matter) are required by law to be transparent about fee payments and fully disclose any payments to their clients. Hiding such payments is already in breach of those rules and, if the Law Society is concerned about a lack of transparency, then perhaps it should consider lobbying for existing laws to be enforced more rigorously before asking for fees to be banned altogether.
It would be interesting to know if the payment of referral fees has created any real problems for consumers, or just hypothetical ones. In our experience at Goldsmith Williams, which spans more than 25 years, we have not received a single client complaint which has been in any way related to these fee payments. It’s not the clients, therefore, that are complaining. Is this another symptom of the increasing polarisation between traditional high street practices and specialist direct conveyancers such as Goldsmith Williams?
Banning referral fees may also have unintended consequences. The Legal Services Board is keen to ensure a level playing field exists between solicitors, licensed conveyancers and the like. If the payment of fees by the solicitor branch of the profession is banned, it would give licensed conveyancers an unfair competitive advantage, an issue about which the Office of Fair Trading has already expressed concern. What’s more, banning fees may have the effect of discouraging financial advisers from helping to arrange conveyancing, will writing and other legal services for their clients. This could, in effect, reduce consumer choice and competition, which is counter to the thinking of most consumer groups and even government. What’s more, regular and certain contracted work enables law firms to plan and resource their businesses.
The legal industry is not without its faults and there are examples of the abuse of the system, but it is surely preferable to identify such instances of abuse and punish individual perpetrators rather than punish the whole sector by imposing a blanket ban? If the referral of cases by claims management firms lies at the heart of this issue, then that’s where the Law Society should focus its attention.
What next? The Legal Services Board and the SRA will need to consult with all potentially affected parties and consider the issues in detail, so it’s unlikely that the rules are going to be changed any time soon. We should all be under no illusion, however, that if a ban is agreed it will have a profound effect not just on the income earning capability of mortgage brokers, estate agents, claims management firms and solicitors, but also on the cooperation which exists between these specialist firms.
Hopefully, common sense will prevail and a sledge-hammer will not be used to crack a nut. Unfortunately, history can throw-up plenty of examples of convoluted thinking winning the day.