Last week I noted that the Law Society’s benchmarking survey was awkwardly timed, finding as it did that client interest is turbocharging practice profits. The Solicitors Regulation Authority is mulling the client account as part of its review of consumer protection, stating that it can find no ‘compelling’ argument in favour of allowing firms to boost earnings thus. So it was moderately encouraging to hear the SRA’s head of strategy offer some reassurance to solicitors gathered for this year’s risk and compliance conference (In Focus). Nothing has been decided and there will be no change this year, declared Aileen Armstrong. Indeed, no alternative may even yet exist, she admitted.
An optimist might infer that, for now, third-party managed accounts (TPMAs) are a non-starter.
One persuasive argument for allowing solicitors to retain some interest on client money is that this income underpins the business model of many conveyancing firms. As we note in our residential property feature, this is a sector that operates on painfully tight margins.
One of the most granular of the 300 (count ‘em!) responses to the SRA’s consultation ought to give the regulator pause. It includes data suggesting that between 5% and 10% of UK law firms will suffer either ‘financial failure or serious financial consequences’ if they are unable to receive the subsidy from client receipts. That’s 900 firms, at the top end of the estimate. In at least 5% of firms – about 500 or so – more than 80% of profits arose from interest income in 2024.
‘Some small firms rely on interest from client funds to remain viable or retain staff, especially in particularly price-competitive areas such as conveyancing,’ the same response notes. Conveyancers have also indicated that they would be unable to complete as many transactions if they were required to use a TPMA.
The watchdog must evaluate whether it wants to put a giant spoke into the wheels of a property market that does not exactly progress smoothly as it is.
Elsewhere this week, there is less encouraging mood music to be heard – on Rachel Reeves’ spring statement. The chancellor is again being lobbied hard to get rid of the fiscal ‘loophole’ created by treating LLP members as self-employed for national insurance purposes. If she does, fees will surely go up.
26 March is a date for the partners’ diary.
No comments yet