SDLT Update: Avoidance Schemes And New Rate

Apologies for the delay since my last post, but things have been pretty hectic to say the least.

Following on from one of my previous posts, Her Majesty's Revenue & Customs (HMRC) are to challenge Stamp Duty Land Tax (SDLT) avoidance schemes.

HMRC are comparing transactions reported to the Land Registry with Land Transaction Returns made to HMRC and following up any discrepancies.

Read HMRC's Statement

Do you have any experience of such schemes?

Whilst on the subject of SDLT, there is a new rate for expensive properties. From 6 April 2011, a new higher rate of 5% will apply to residential purchases for more than £1 million.

Gold, Silver And Bronze: Staying Ahead Of The Game

I have read rather a lot recently about commoditisation and problem solving. As I understand it, the argument goes something like this:

• Law firms can solve Clients' legal problems by embracing IT to help standardise and streamline their processes.
• Furthermore, practices should implement such systems now before the initiative is lost to the more commercially minded, scaled up competitors that alternative business structures will inevitably bring.

I certainly agree that the Internet is a "great leveller" for small and medium sized firms, providing access to markets and opportunities previously enjoyed exclusively by larger organisations. A Sole Practitioner's website can, in theory, reach out to the same audience and offer similar services (online at least) to a top City firm, especially in conjunction with Case Management and Document Production Systems and the outsourcing of secretarial and other key processes.

However, for me, the success or otherwise of such an approach depends on a number of factors, including:

1. Your Client base, in terms of location and demographics, for example.
2. The type/s of service/s your Clients want, be it "off the shelf" legal documents or bespoke advice and assistance etc.

For those firms that have an eclectic mix of Clients with different needs, how about adapting your services accordingly? For example, for IT savvy, cost conscious, non-centric Clients offer them a basic, "packaged" product similar to that advocated above? Similarly, deliver a personal, bespoke service to those local Clients demanding just that. Finally, for those Clients somewhere in between, give them the best of both-a mainly automated service, but with some human interaction for peace of mind. The level of service will then dictate the price. I have touched on this idea in previous posts (see "Conveyancing Factories": Can Solicitors Compete?).

Clients are accustomed to making such choices. One example that immediately springs to mind is insurance. Coverage is commonly labelled "gold", "silver" and bronze".

So how do you apply this principle to legal services? Whilst it perhaps lends itself more to work of a transactional nature, I believe that, in most areas of law, the method of delivery and/or the extent of involvement, can be tailored to meet the Client's needs. Here are just a few examples:

Wills and other documents

There will no doubt be some people who simply want a basic template that can (depending on the firm's capabilities) either be downloaded and completed in accordance with the accompanying notes or (even better) compiled online. In both cases, no help is required.

Others may want to go a little bit further and have the reassurance of a fee earner check the completed document to ensure that it is valid (but not advise as to its suitability/fitness for purpose).

Some Clients may be looking for a bespoke document to be prepared from scratch, based on their own individual circumstances, following a face to face meeting and specialist advice and assistance.

Conveyancing

Some will want the bare minimum, namely legal completion of their transaction. They desire a stripped down service, only paying for what is absolutely essential. They expect to be charged less if there is no Mortgage to redeem and/or register. Similarly, they will save money by completing and submitting the Land Transaction Return themselves. Given email and online case tracking, they also consider postage and telephone calls to be "added extras" and want to retain some control over the associated costs.

Other people will want the certainty of a fixed fee to cover everything, apart perhaps from the risk of the chain collapsing.

Finally, there will be those Clients who prefer the comfort of a "no move, no fee" guarantee and are prepared to pay for the privilege.

Probate

Depending on how complex the circumstances, Clients may just need a Grant of Probate/Letters of Administration. Possibly, a guide and links to the relevant forms is all that is required

Others may want you to obtain a Grant/Letters and also handle the sale of the deceased's property.

Some people may, in addition, require advice and assistance in relation to the actual administration of the estate.

Divorce

Some Clients act in person, possibly seeking ad-hoc advice. Again, a guide/links may well suffice, otherwise fixed fee web chats may be the answer.

Others may want you to deal with an undefended Petition, but not to get involved with any children or ancillary relief matters.

Then there are those who require advice and assistance regarding all aspects of their marital breakdown.

Litigation

As with divorce, there may be those who just want some initial advice or a Letter Before Action sent to the other party. In the latter case, the Client may be able to adapt a precedent available through your website (a debt collection matter, for example).

Again, some unrepresented Clients may need help as and when required.

At the other end of the spectrum, there will be those who instruct you to act from start to finish. Although all cases are different, there are those (Small Claims, for example) where the likely work can be assessed at the outset and thus justify a fixed fee.

The most important point is to understand exactly what it is your Clients want and how they want it delivered. Once you have done this, you can develop and adapt your services to meet their differing needs.

What do you think?

SDLT Schemes To Be Avoided?

This week's edition of my local free newspaper contained an advertisement for a service claiming to "save thousands of pounds on Stamp Duty" and "...halve your Stamp Duty" targeted at those buying a property priced in excess of £250,000.

Stamp Duty Land Tax ("SDLT") is charged at the rate of 3% on such properties up to a value of £500,000 and 4% beyond that, so the potential savings are significant.

Having investigated the website in question, the savings take the form of a "rebate" received within 30 days of completion. The scheme applies to residential and commercial property, whether freehold or leasehold, and individuals, companies and pension funds. it is "...structured around the in depth advice of leading Tax Counsel" and reference is also made to a conveyancing panel. There is even a money back guarantee. Sound too good to be true? Well apparently "...it isn't 'that easy'" to develop these plans.

Unsurprisingly, no details are given as to how the savings are actually achieved, although the examples suggest that no SDLT is payable at all. Rather, the Client pays the advisers' fees.

As I am not a tax expert, I cannot begin to guess how the schemes are structured or comment on their effectiveness. However, if the number of firms listed on Google following a search for "SDLT avoidance" is anything to go by, there must be something in it. This leads me on to my main question: should Lawyers be alerting Clients to the existence of such schemes and, if they should, is a failure to do so a breach of duty, giving rise to a claim in negligence?

Law firms will naturally be very wary of participating in any scheme which they do not understand and/or raises suspicions. Perhaps, that is why the company I looked at had their own conveyancing panel, prepared to facilitate the arrangement. In any event, where does this leave the High Street practise unfamiliar with the process? Do they take a punt and become involved, say nothing and risk a negligence action or mention the possible savings to Clients and hope that they are not "poached" by a panel firm? Of course, these scenarios assume that the Client has not already been "hijacked" like Estate Agents.

I would welcome comments from anyone with experience of these schemes or any further information.

No Move, No Fee

Staying with Solicitors charges, I recently came across a potential Client rejecting a conveyancing quote simply because the firm in question did not offer a "no move, no fee" service. I must confess that at the time I thought the firm was right. Conveyancers are already doing more work for less, without having to underwrite the housing market, especially in the current downturn. Why should Solicitors take the hit (again)? However, having thought about it and done some research, now I am not too sure.

I think it is fair to say that most Clients these days expect their Estate Agent to offer "no sale, no fee", so why should Solicitors be any different? After all, Agents stand to lose their marketing spend, not to mention their time and resources. The difference, of course, is the potential return. To compensate them for taking such risks, Agents invariably charge a commission based on a percentage of the sale price. True, advertising can be expensive and both the volume and frequency of work may be less, but, nevertheless, I figure that the Agents' mark up is more than comparable with the Solicitors' fixed fee, especially for higher value properties, which no doubt make up for the cheaper ones. The flip side, of course, is that most law firms get paid regardless of the outcome. Furthermore, their disbursements are also paid by the Client. So, in summary, it seems to be all about a risk/reward analysis. Agents risk getting nothing and insure against this eventuality, whereas most Solicitors prefer a certain, lesser amount.

However, the tide seems to be turning. Plenty of volume Conveyancers are now offering "no completion, no fee", without seemingly impacting on price, although the small print of such schemes and, and in some instances, the associated insurance policy, may not be quite what they seem. More importantly, High Street firms are now getting in on the act, sometimes charging no more than usual and waiving their fees (but not disbursements) in full if the transaction falls through. Other schemes charge more, in a similar vein to the Agents, either in the form of an upfront additional payment, or higher overall charges. The point is that Solicitors realise the benefits to both parties. The Client secures piece of mind and the firm gets the potential business in an increasingly competitive marketplace flooded with IT savvy "legal tourists". Factor in the possibility of cross-selling other legal services and the business model seems to make sense if the apparent uptake is anything to go by. The exact terms will undoubtedly depend on the circumstances, but the scheme will, at least initially, be one of your unique selling points differentiating yourself from most, if not all, of your local competitors. Don't get left behind. Trailblaze and let the rest follow.

Solicitors Charges: Act or Actor?

For all those familiar with the BBC2 programme, "Mary Queen of Shops", the phrase "point of difference" will strike a chord. How can small, independent retailers differentiate themselves from, and compete with, the supermarkets and other so called "big boys" when price is a non starter? Descriptions such as "local", "experience", "quality" and "service" are often the key and I firmly believe that these "benefits" can be equally applied to the legal profession, especially with the imminent arrival of what has been dubbed "Tesco law". Previous posts have touched on this and will be expanded on in the future. For the time being though, I want to concentrate on one specific aspect: should Solicitors charge based on who does the work or the end result?

Take conveyancing as an example. I am buying a house and approach a local law firm. Barring any unforeseen complications, the process should be relatively standard involving a Contract, Searches, Enquiries and probably a Mortgage. However, a Partner will be handling my case from start to finish and the fees reflect their qualifications and experience. Another local practice charges less, but most aspects of the transaction are dealt with by a "Conveyancing Executive" under the supervision of a Solicitor (not necessarily a Partner). Does it really matter to me who actually performs the work? I suspect that for the vast majority of Clients, the answer is no. In my experience, Clients regard the Solicitors firm as acting for them, rather than the individual fee earner. In fact, most Clients would probably be blissfully unaware of the fee earner's status. True, such information must be given at the outset, but how many Clients absorb it in practice? So, the upshot is that, to coin a phrase from the realm of negligence, it is the act being done, rather than the actor performing it, that is key. Consequently, in this particular area of law at least, price is crucial at a local level and firms should consider charging the market rate regardless, as well as delegating routine tasks to Paralegals. This may mean additional staffing costs, but this should be offset by the increased capacity and workload.

To be honest, I think the same is true in almost all other instances where the case invariably involves a set pattern and fees can, therefore, be fixed. I am thinking of uncontested divorces, basic Wills, obtaining a Grant of Probate, Compromise Agreements and the like. The ability/capability to do the job properly is a given. If you have different levels of fee earners all practising say family law, why should one charge more than the other, unless the particular facts of the case call for their specific intellect or expertise? On the other hand, different charging rates can be justified where the amount of work involved and/or complexity are unknown and time based charging is utilised.

In summary, will the individuals qualifications and experience add real value? If yes, qualifications, experience and hourly rates are still relevant, otherwise constant fixed fees across the board, coupled with standardisation and delegation, are the answer.

How Can Solicitors Compete?

In a previous post, I suggested that most High Street conveyancing Solicitors simply cannot compete on price and should not even attempt to do so. So, how else can such firms survive in the ever changing legal marketplace? Here are just a few ideas:

1. Identify both your existing and "wish list" Clients and, in each case, determine the type/s of service they (not you) actually want and what they are willing to pay (not how much you want to charge). Unless and until you have performed this exercise, you are simply fumbling around in the dark, unable to reach your target audience with any degree of precision. It is impossible to "be all things to all people". Armed with such information, why not offer different levels of service to different Client types?

2. Differentiate your practice. What is your unique selling proposition? Why should potential Clients choose your firm over its competitors, especially if you are more expensive? How can you justify higher charges? What additional benefits do you provide and why are they important? You could, for example, emphasise that you are:

2.1 Partner led;

2.2 Qualified;

2.3 Experienced;

2.4 Regulated; and/or

2.5 Local.

Furthermore, you offer:

2.6 A personal service; and

2.7 The protection afforded by both professional indemnity insurance and the Solicitors Compensation Fund.

You may also have embraced IT.

Perhaps, you visit Clients at home or in hospital.

3. Now you know your target audience and distinguishing features, promote your own brand, rather than someone else's. Take advantage of the new opportunities created by social media and social networking.

4. Consider offering a truly fixed price, irrespective of whether it is a sale or purchase, freehold or leasehold, with or without a mortgage etc. First, research the types and values of properties in your target area. Next calculate your average fee. Practice/case management systems should help in both respects. Finally, ensure that the average fee remains competitive for the most common type/s of transactions and that the estimated loss of income related to low value transactions will at least be met by the potential increased number of higher value matters.

5. Arrange the Energy Performance Certificate and then refund its cost (about £50) if you deal with the conveyancing. A group of local firms could join together for advertising and marketing purposes and still offer Clients freedom of choice between local, quality firms. Such a proposition could also alert unsuspecting potential Clients to the alternative being advanced by third parties.

6. Offer a free Will or a discount against other legal services, especially those not provided by your competitors. Provided you meet/manage Clients' expectations, this should, over the medium to long term, produce dividends, cultivating brand loyalty. Clients will, in time, regard you as their "family Solicitor" and recommend you to others.

7. Offer Clients a referral fee or other financial incentive for all new instructions introduced by them.

Of course, with the exceptions of 4. and 5., all of these ideas are of general application.

"Conveyancing Factories": Can Solicitors Compete?

In short, the answer is, in my view, no, and law firms should not even try. Here's why.

With any type of service, quality and price are undoubtedly the main drivers influencing customers'/clients' choices. Most people believe the old adage that "you get what you pay for". Nevertheless, many buyers and sellers of property, not to mention those remortgaging their homes and/or transferring ownership, are perfectly happy to instruct the cheapest firm, wherever they may be located and regardless of the service offered. It is the end result that matters most, not how (and if!) they get there. Conveyancing is, despite the personal attachment, not to mention the financial importance of the transaction, viewed no differently to the weekly shop. Price is king.

At the other end of the spectrum, are those that desire a bespoke, personal, local service and are, if necessary, prepared to pay for the privilege. For them, the "experience" or "journey" is key.

Finally, there are those somewhere in the middle, who are simply after the best compromise that they can get. Their expectation is that both price and quality of service will be "average"; a sort of halfway house.

So, should Solicitors try to compete on price? I believe the answer, for the vast majority of High Street practices, is no, at least not entirely. Such firms are unlikely to ever reap the economies of scale enjoyed by the out of town, high volume/bulk conveyancers. For this reason, being the cheapest is simply unattainable. No matter what they do, their competitors, especially with the proposed introduction of alternative business structures (i.e. "Tesco law"), will undercut them, possibly even offering conveyancing as a loss leader to grow their brand. Even in the current market, a Google search for "cheap conveyancing solicitors" lists numerous firms offering fees "from £89" and this ignores the cost of advertising and marketing and referral fees. In any case, it is your bottom line and reputation that counts. More work does not necessarily mean higher profits at the best of times, and reducing fees is hardly going to help! The adverse consequences attaching to a loss of goodwill should not be underestimated either.

It does not follow, however, that you should not give Clients the service they actually want (not what you think they want) and adjust your pricing structure accordingly. I have commented elsewhere on how this might otherwise be achieved and will revisit this conundrum in future posts, but here are just a few ideas. You could, for example, offer different levels of service to different Client types. Another possibility, depending on the types and values of properties in your target area, could be to offer the same fixed fee, irrespective of whether it is a sale or a purchase, freehold or leasehold and with or without a mortgage etc. Simply calculate your average conveyancing fee, which case/practice management systems should readily support, and give the comfort of clear, straightforward and transparent pricing.

Energy Performance Certificates: An Opportunity For Solicitors

A recent posting on The Law Forum highlighted a new venture called Partner Property ("PP") being promoted by ipacks2go and eTech. In essence, the scheme aims to provide "'t]he ideal revenue stream replacement for HIPs". If the seller decides to use one of PP's "legal partners", the Energy Performance Certificate ("EPC") is free. The Domestic Energy Assessor then gets paid for the EPC and, on completion, receives a share of the conveyancing fees, which can be split with the Estate Agent.

As I commented at the time, this appears to be yet another attempt to "hijack" Solicitors' Clients. To try to combat such threats, why don't Solicitors offer similar incentives? They could, for example, arrange the EPC and then refund its cost (about £50) if they deal with the conveyancing. A group of local firms could join together for advertising and marketing purposes and still offer Clients freedom of choice between local, quality firms. Such a proposition could also alert unsuspecting potential Clients to the alternative being advanced by PP and others.