Ombudsman gives lawyers economic incentive to improve complaints handling: increased profits

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23 January 2014


Sampson: sound economic analysis of what’s in it for lawyers

The Legal Ombudsman today appealed to solicitors’ bottom line to persuade them to take complaints more seriously, saying that law firms and other providers could increase their profits by up to 3% if they do.

Research LeO commissioned from consultancy firm Economic Insight to build the business case for better complaints handling found that firms do not appreciate the importance customers attach to complaints handling – meaning they only see it as a cost.

While recognising that there is indeed a cost to improving complaints handling, the research said this is more than offset by increased customer retention and acquisition as a result of an enhanced reputation, as well as cost efficiencies and improvements resulting from the data collected from complaints.

“It is well established that reputation or brand value can generate increased profitability for firms across a range of industries,” it said. “Consequently, to the extent that how firms manage customer complaints can impact their reputation, then clearly there is a natural commercial incentive to have complaints handling processes that meet customer needs.”

Economic Insight also said that “a robust approach to complaints handling can help reinforce a firm’s internal culture, increasing staff retention rates (and thus reducing costs).”

Both economic theory and evidence backed up the case, researchers said, and financial modelling indicated that “law firms may be able to increase their [net] profitability by around 2%‐3% as a result of having good first-tier complaints handling”.

At the same time, they conceded, “the likelihood of this is unknown”.

Consumers in turn could benefit from better service and lower prices.

The overall net benefit to lawyers and consumers combined could be between £53m and £80m over the next decade, the analysis calculated.

Chief Legal Ombudsman, Adam Sampson, said: “For too long now the discussion around complaints has been that practitioners must do it because the rulebook says so.

“This report isn’t conclusive – but it does give us some sound economic analysis of what’s in it for lawyers when they are thinking about complaints and how they can benefit from taking them seriously; and not just because regulators tell them that they must.”

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