Many law firms rely on business being referred from other practices or other third parties. However, this practice is strictly monitored by the Solicitors Regulation Authority (SRA) to ensure the best interests of the client and ongoing trust in the legal profession is protected.
In January 2018, a personal injury sole practitioner was suspended for two and a half years and ordered to pay £50,000 in costs after admitting to paying unlawful referral fees for claims and running cases which clients had not authorised .
Andrew Cinch, who ran a firm in Manchester stated he had run claims for purported road traffic accident victims who had not signed the relevant forms or had expressly said they did not want to pursue compensation. In addition, he confessed to working with a claims management company after the payment of referral fees for personal injury claims was banned in 2013.
The SRAs guidance around fee sharing and referrals
Chapter 9 in the SRA Handbook is devoted to fee sharing and referrals . The objective of the guidance is to protect the client’s interests and ensure their trust in the firm is not jeopardised by arrangements with third parties.
Four of the SRA’s ten principles relate to fee sharing and referral arrangements . These are:
- acting with integrity
- acting in your clients’ best interests
- ensuring your independence is retained
- providing a proper standard of client service
However, in the current climate, compliance is all about outcomes. Therefore, solicitors need to ensure they understand the what the SRA is trying to achieve with its guidance relating to fee sharing and referral arrangements. The outcomes are listed as:
- ensuring your firm’s judgment and independence are not compromised by any third-party arrangement
- the interests of your clients are paramount over that of the third-party referrer or your desire to receive more referrals
- clients are given the information needed to make a choice on how to pursue their matter
- clients must be made aware of any financial gain made by the referrer due to making the introduction to the solicitor
- clients are made aware of any fee sharing arrangement
- no payments are made to introducers if the client in question is subject to criminal proceedings or are receiving public funds
- the agreement with the referrer must be in writing
- no referral fees can be paid for personal injury cases
The guidance then goes on to illustrate practices which may demonstrate non-compliance. These include:
- entering into an arrangement with a third-party such as an unauthorised partnership, which is in breach of SRA rules
- allowing the introducer or fee sharer to influence the advice you provide to your clients
- accept referrals in situations where you believe the client has been put under pressure to take legal action
To ensure you are in full compliance with the SRAs rules regarding third-party referrals and fee sharing your firm should have the following policies and procedures in place:
- accurate records of all past and present fee sharing and referral arrangements
- be open and upfront to clients about any referral fees being paid or fee sharing agreements and notice should be in writing
- create a fee sharing or referral policy so all staff understand the rules and regulations relating to entering into such an arrangement
- ensure all referrals are being made with the client’s best interests in mind
- do not pay any fees for personal injury related matters as this practice has been prohibited since 2013
Ensuring your firm has strict policies and procedures in place for accepting third-party referrals and/or fee sharing arrangements can prevent the SRA from investigating your firm on matters pertaining to these practices.
We can assist you with drawing up robust policies and procedures to ensure you are in full compliance with this and other SRA rules and regulations. By writing down processes and communicating them to all staff, you can be confident that any referrals or fee sharing arrangements you do enter into will not result in complaints or allegations of wrongdoing.
We have been helping legal professionals with professional disciplinary and regulatory hearings for over 20 years. If you have any questions relating to an SRA investigation, please call us on 0151 909 2380 or complete our Free Online Enquiry and I will soon be in touch.