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.

"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.

Do Referral Fees Work for Solicitors?

According to a recent report commissioned by the Legal Services Board, referral fees do not harm consumers. Whilst one can question the efficacy of such findings (including the apparent bias of estate agent respondents and the small, and arguably non-representative, samples used), they have today been supported by a separate report. According to the Legal Services Consumer Panel, referral fees neither increase costs nor reduce the quality of advice. This is, perhaps, surprising given the Panel's concerns that price, not quality, dictates who gets the work, clients are subjected to high pressure sales techniques, non-disclosure is prevalent and panels are restricted, mainly consisting of larger firms. Consequently, the recommendations include greater transparency, written consent and enforcement action. Disclosure is already required pursuant to the Solicitors Code of Conduct, breaches of which can (and should) be enforced by the Solicitors Regulation Authority, so it is rather doubtful that the protection afforded to clients will be enhanced, unless, of course, the Panel feels that the Authority is either unable or unwilling to perform its duties. If it is the latter, is this an example of what Law Society President Robert Heslett warned on Tuesday is the looming threat to the profession's independence? Similarly, the Panel concede that written consent is impractical in personal injury cases where much of the initial work is transacted over the telephone. The same argument can surely be applied in many other fields, especially with improved IT and "legal tourists" removing the geographical constraints that have hitherto existed. It is certainly somewhat difficult to accept at face value Vanilla Research's claim that the suggestions are a "game changer".

Regardless of whether or not these two reports prove determinative in the Board's final analysis, I believe there is a broader, and possibly more pressing, issue: are referral fees actually good for the profession itself? Should solicitors not retreat and regroup now before they become over reliant on third parties for work? For what it is worth, my own view, as both a practising solicitor and law firm consultant, is that, irrespective of the ethical issues, paying referral fees to agencies can be self defeating. Here's why.

Yes, the volume of work may well increase, but what really matters is your bottom line and reputation/goodwill. Take A Firm & Co. They were a general High Street practice undertaking both contentious and non contentious work, largely for local clients, who had either used the firm before or had been recommended to do so. Advertising was fairly low key as a consequence. Most work was transacted face to face and "snail mail" was the norm. Work was handled by experienced solicitors with a good claims record. Support staff were experienced and had been with the firm for many years. Workload was, except for the usual peaks and troughs, more or less constant, as was turnover and profit. However, the partners began noticing that they were losing conveyancing work. They discovered that local estate agents, who they regularly dealt with and instructed to carry out probate valuations, were directing erstwhile clients to other firms, usually out of town, and receiving a referral fee in return. A similar thing was happening in respect of personal injury work. Claims management and insurance companies were capturing clients at an early stage and referring them to panel solicitors, again willing to pay for the privilege. Not wanting to get left behind, A Firm & Co. entered into an arrangement with both a local estate agent and a claims management company. They paid the Agent £200 per conveyancing file and £500 for each personal injury case (the reports highlighted that the fees can be as much as £400 and £800 respectively).

As a consequence, workload increased. New staff had to be taken on to cope and a new IT system (including a case management system) was installed, all at significant up front cost to the practice, placing considerable strain on the firm's cashflow. Indeed, borrowing was increased. Costs pressures dictated that the new employees were more junior/less experienced than those already at the firm, introducing a culture change and necessitating more training and supervision than before. Similarly, the solicitors increasingly delegated more work to the non qualified staff, personal contact was lost and other service standards slipped. Unfortunately, some mistakes were made, leading to a rise in the professional indemnity insurance premium, already swollen by the increased turnover and referral arrangements. Moreover, the arrangements had to be disclosed to clients, who questioned whether the firm was acting in their best interests. Dissatisfied clients made complaints, taking up yet more valuable time, and spread adverse publicity, damaging the reputation/goodwill that had taken years to build up. Eventually, the firm outgrew its town centre premises and relocated to an expensive open plan office complex on the outskirts of town, alienating former clients still further. Staff turnover was much higher. I could go on, but you get the picture.

Ah, I hear you say, but what about the increased fee income? This made it all worth it right? Well, yes, turnover was up, but the referral fees had to be deducted from this. Even discounting the additional overheads and other burdens, the firm was, in effect, standing still, doing twice as much work for the same fees (similar to some Legal Aid firms, but without the element of public service). Factor in the associated expenses and other negative effects and A Firm & Co. was, in fact, worse off. Nevertheless, they felt they had gone past the point of no return. They had invested so much in this new, "commoditised" business model, and were so reliant on the agents and claims companies, that they simply could not "pull the plug". They were stuck with the situation they themselves had created and could not help feeling that the tail was wagging the dog. You do not need me to tell you how much worse this situation will get if the agent and/or company squeeze the firm for even more money, the referrers go bust or close down, rules and regulations change or the markets slump. The same (or at least a very similar) scenario can be applied to third party referral networks, who take a share of any profit costs, as well as charging an annual membership fee.

So what is the alternative to the "if you can't beat them, join them" mentality? Well, I firmly believe that A Firm & Co. should have concentrated on building (not destroying) their own brand, rather than someone else's. They were reliant on the agent and claims company to attract the client and then automatically refer the client to the firm. A Firm & Co.'s own branding was, to a certain extent, irrelevant, as they were going to get the work anyway. Their referral fees were contributing to the third parties' own advertising and marketing budgets. A Firm & Co. both neglected its core clients and took no independent action to gain new ones.

I am in no way advocating that the firm should have continued with the same, staid "traditional" approach. As I have been at pains to stress elsewhere, law firms must adapt both their services and mode of delivery to compete with the new, more commercially minded entrants to the legal marketplace (so called "Tesco Law"). A Firm & Co. could, for example, have developed an interactive website to both serve existing clients and attract new business. IT could still have streamlined processes and helped improve communication, transparency and access to information. They could even have gone further and created a "virtual" office engaging self employed consultants and slashing operating costs in the process. Both old and new media could have been utilised to improve the firm's exposure. Standard tasks could still have been delegated to paralegals. The firm could have become more specialist, differentiating itself from rival firms and charging a premium based on its unique selling proposition. Perhaps a merger with a compatible firm to achieve economies of scale was the way forward.

Believe it or not, I also support referrals, but to and from fellow solicitors. A Firm & Co. could have referred work that it did not carry out to another firm, perhaps as part of a reciprocal arrangement or in return for a fee or share of any profit. It could also have sought work from another firm. Such arrangements, which do not necessarily have to be disclosed, re-seize the initiative, help solicitors retain control over their own destiny and keep referral fees within the profession. Over reliance should not be an issue either if the firm has also adopted some of the practices outlined in the preceding paragraph. The firm will always have its (enhanced) brand to fall back on.

Yes, similar growing pains and teething problems would have been encountered, but they could have been controlled, managed and smoothed over more easily. If necessary, more regard could have been had to the needs of those existing clients still craving a local, High Street Solicitor providing a bespoke, personal service, whilst at the same time reaching out to more IT savvy, less centric potential clients where speed, ease of use and price are king. Different levels and types of service could have been offered to accommodate both. Crucially, the firm's bottom line should have improved and its medium to long term future placed on a much firmer footing.

I do not want to scaremonger and I appreciate that all firms are different. A combination of solicitors referrals, other referrals and updated practices and procedures may well be the answer for some, but if, as seems to be the case, third party referral fees are here to stay, each individual practice must carefully consider all of the alternatives and decide what is best for them. Blindly following the crowd may not be all it is cracked up to be.

26/5/10