Referral fees: greater transparency
The Legal Services Board (LSB) has backed improvements to the transparency of referral fees paid by licensed conveyancers following a review that found absolutely no justification for a ban.
While the Law Society continues to press for the personal injury referral fee ban to be extended to all areas of the law, the LSB has approved changes to the Council for Licensed Conveyancers’ (CLC) disclosure of profits and advantages code.
The LSB said it was “pleased that the CLC is introducing requirements that will make referral and fee-sharing arrangements more transparent for clients, reflecting the board’s guidance on referral fees issued… in May 2011”.
The CLC changes follow a consultation with members that only found a narrow majority against a ban, but strong support for greater transparency.
During its review, the CLC determined that the biggest threat to the consumer interest posed by referral arrangements was the level and timing of information given to consumers. As a result, the new measures require that:
- Agreements with third-party referrers should be in writing and subject to periodic review;
- Clients should be informed in writing of the arrangement’s existence no later than when accepting instructions, or when introducing a client to another person;
- Clients should be advised they have a choice of provider; and
- The client should be informed of the nature of the arrangement (including any payment made), with whom it is made, and any impact (including any legal costs they are charged).
CLC chair Anna Bradley said: “Our review of referral fees in conveyancing found no evidence of consumer detriment – an assessment shared by the LSB and Legal Services Consumer Panel following their own past research. An outright ban on all referral fees that some have called for could not possibly be justified in relation to conveyancing on the evidence.
“We proposed, and the LSB has granted, a proportionate regulatory response in the form of additions to the transparency requirements already in place. Those enhanced transparency requirements empower the consumer to manage the low level of risk themselves.”
Licensed conveyancers will have three months to comply with the new arrangements following their publication.
“The client should be informed of the nature of the arrangement (including any payment made), with whom it is made, and any impact (including any legal costs they are charged).”
Will the client be informed (when relevant) that:
• the conveyancer has been referred, not because of their expertise and efficiency, but because the referrer is (for commercial reasons only) being told by his or her paymasters that is where the conveyancing work must go?
• it can be very difficult for some conveyancers to stand up to a referrer in order to protect their client’s interests, for fear of upsetting the referrer and losing the regular supply of work?
• the amount of some referral fees push the fee going to the conveyancer down to a level that is so low corners may need to be cut?