Client money: Not holding it will worsen client experience, firms say
A poll of law firms has found almost complete opposition to the Solicitors Regulation Authority’s (SRA) idea of preventing them from holding client money.
The regulator will issue a consultation next week that will set this out as a long-term goal as a way to reduce risk, while recognising that the alternatives are not yet sufficiently developed.
The survey of nearly 100 SME law firms by NatWest found that 96% disagreed with the proposal.
Asked what the impact on the sector would be if law firms were not able to hold client funds, 58% said it would reduce the quality of the client experience, while 16% said it would increase the cost of legal services.
Some 13% thought it would make limited difference in the ultimate protection of client funds, with 6% anticipated that it would hit the profession’s reputation and another 6% thought some law firms would fail without the income – the SRA this week expressed concern about firms being financially reliant on interest.
Nearly nine in 10 respondents (88%) did not see third-party managed accounts (TPMAs) as a vialbe alternative.
Alison Lobb, managing partner of Liverpool firm Morecrofts, told researchers: “This is a case of sledgehammer to crack a nut. Solicitors have successfully managed to hold and safeguard client money for generations. It’s a headline to mask the underlying issue of regulatory efficiency and will not make client money safer.
“It will make practical management of legal matters more difficult, will lead to increase claims from clients and will bring in other costs and risks into the process.
“It would require many firms to completely remodel their business financially and undoubtedly lead to a price rise in legal services for the consumer”.
Neil Lloyd, managing director of Midlands firm FBC Manby Bowdler, added: “If this happens the price of legal services will simply rise. It might actually be simpler for law firms running their business, but it will wipe out profits and viability for many law firms in the short term before prices rise”.
For Mike Leeman, managing partner of Liverpool firm Bell Lamb & Joynson, the idea “seems to be an answer to avoid the fundamental issues the regulator has in delivering their role”.
He continued: “It would be inevitable that the cost of legal services to consumers would rise particularly in aspects such as residential conveyancing and private client services.
“In relation to TPMAs the technology exists but it’s almost certain that client experience and the speed of transactions would suffer. It’s not really a practical solution.”
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