LSB research: referral fees do not harm consumers – and can save them money

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By Legal Futures

17 May 2010


Referral fees: cutting the price of conveyancing by encouraging investment

Referral fees in personal injury (PI) and conveyancing do not harm consumers and so there is no case to ban them or take any other regulatory action, a major piece of research released today has concluded.

In fact the research, commissioned by the Legal Services Board, found that referral fees actually result in cheaper conveyancing fees and improved access to justice for injured people.

The “Cost benefit analysis of the impact of referral fees in legal services”, conducted by Charles River Associates (CRA), found no evidence that referral fees have led to a decline in quality in either area. Estate agents reported that transactions appeared to move more quickly with firms that paid referral fees, and that national conveyancing operations achieved high levels of consumer satisfaction. While this national model leads to a more remote, non face-to-face service, “there is no evidence this reduces quality”, said researcher Kyla Malcolm. It is a “different” model, not a worse one than the local solicitor approach.

The evidence suggests that the average conveyancing fee for those paying referral fees is £543, against £687 for those who do not pay them. Ms Malcolm said this was because firms paying referral fees had “more certainty” about the amount of work they would receive and so were more prepared to invest in technology and processes to become more efficient.

In personal injury, success rates in motor claims have not declined, while there is no evidence of solicitors under-settling claims because of the pressure of lower margins. Contrary to the claims of the insurance industry, CRA said there was also no evidence that increases in referral fees have led to an increase in the price of legal services.

Though insurance premiums have probably increased, Ms Malcolm said, this was partly offset by the referral fees that insurers themselves receive. In any case, it was “difficult to describe this as detriment” as the rises were caused by consumers exercising their right to bring a claim. She added: “Consumer evidence has supported the link between marketing and making additional claims which would not otherwise have arisen.”

CRA also looked at criminal advocacy; though referral fees are banned in legally aided work, the way fee-sharing between solicitors and barristers operates can have similar effects. CRA found concern that the focus on profitability causes advocates to be appointed for cases beyond their competency, but said the lack of a quality assurance scheme for advocates prevented an assessment of whether consumers suffered any detriment.

The research is part of the Legal Services Board process of deciding whether it needs to take any action on referral fees. Later this month its consumer panel will publish its own conclusions, and the board’s strategy director, Crispin Passmore, said it should reach a position by the end of the summer at the latest.



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