Referral fee: time to reconsider ban

Referral fee: time to reconsider ban

The Solicitors Regulation Authority yesterday started an “open” debate about allowing solicitors to pay referral fees for legal aid and criminal work, saying the present ban acts as a barrier to consumer choice.

The move is likely to be met with anger by the Bar Council, which has been campaigning against the apparent growth of solicitors demanding referral fees from barristers, and in January extracted a promise from the Lord Chancellor, Chris Grayling, to strengthen the Legal Aid Agency’s ban on them.

The SRA – which has taken no position on the issue at this stage – acknowledged that many lawyers find it “distasteful and unethical to use referral fees to pass clients between businesses”, particularly where consumers are making a distress purchase such as in many criminal matters.

But it continued: “However, the criminal legal market has been in a state of flux for some years, with changes to legal aid fees, the introduction of means testing, and wider changes in the justice system, all of which have led to smaller volumes in many parts of the systems.”

The SRA said these changes are all having impacts on the structure of the market, to the extent that the traditional roles of solicitor and barrister have become blurred, with the former more involved in advocacy, and the latter offering services beyond advocacy.

“The breakdown of these roles means that the flow of cases through the system, or sections of the legal market, is different to that it might have been historically. It is right to therefore question if the traditional rule banning referrals from this market is still sustainable.”

Though the Legal Aid Agency may in any case ban referral fees, it said the question was whether the SRA as a regulator should “restrict business practices given our regulatory objectives”.

The SRA said that there were unproven rumours of referral fees already being paid directly or indirectly, for example, to acquire advocacy cases or swap multi-handed cases, and asked consultees for evidence of this and the impact on consumers, access to justice and the rule of law.

The SRA said a balance had to be struck between the potential for improving access to justice and the fact that the ban was put in place on ethical and public policy grounds – albeit 15 years ago, “in a very different environment”.

“We understand the economic imperatives that might lead to referral fees being an important part of the business model throughout the criminal market, but that does not necessarily mean that it is in the interests of vulnerable consumers or the rule of law.

“However, a business that refers clients to an appropriate lawyer might increase the take up of legal advice in the police station or reduce the costs of providing such services. The lawyer would still be bound by the same obligations relating to competence and ethical standards.

“Similarly, the need for the criminal client to navigate between police station adviser, solicitor and advocate may mean that properly aligned incentives can ensure that any lawyer or business involved refers appropriately rather than retaining cases when it may not be in the client’s best interests to do so.”

    Readers Comments

  • Warren Smith says:

    Ian Ball, I am placing comments on this article for the same reason that I originally lobbied the SRA to change rule 9.6 (and previously lobbied all regulators to open up their membership data during 2013/14) – because I want to improve choice and access to justice for clients. There are far more effective ways to promote and/or commercialise Access Solicitor than lobbying regulators and then subsequently defending my position against ill thought out (and now from you, personal) arguments published against me. The BSB’s own guidance on referral fees says that Access Solicitor’s proposed business model is already permitted, does not conflict with the client’s best interests, and acknowledges the value that our service delivers. The absolute ban of the SRA is inconsistent with the BSB’s approach and needs to be reconsidered. I’m very happy to speak offline to see if I can dispel some of your misunderstandings and/or misgivings about my personal motivations and the value of our service.

  • Ian Ball says:

    Methinks Warren Smith sees this article and comment section as a marketing exercise by which he hopes to make some future money if he can persuade the regulators to relax the rules without over-exerting himself at the sharp end of practice. And looks like he has bought the farm as far as management-speak is concerned. Paying for work to be sent your way may be a sign you are not good enough to be instructed on merit….asking to be paid for sending work someone else’s way may be a sign you won’t recommend someone else unless your palm is greased first. Making a business out of referrals may be a sign of intellectual confusion compounded by economic illiteracy – its difficult to see how value is added whilst fees are gently siphoned off into the pockets of fixers. Unless of course, the new arbitrator of quality is, uniquely poised to ‘help through an increasingly transparent and verifiable online channel’…Presumably the monthly marketing fees Warren Smith refers to are destined to be harvested by Given the independent Bar is still essentially a referral profession, would Warren Smith like to see all barristers pay all their instructing solicitors (or even his company) for a slice of the action? Monetizing transactions is no guarantee of excellence, no matter how much wishful thinking or convoluted logic is involved.

  • Warren Smith says:

    Richard Moorhead thank you for a sensible comment. What you suggest is precisely the case that made to the SRA in December based on real data and our actual experiences in the marketplace during 2014. The emotional rantings of others about lost protections and greed are typical. No protections are lost when lawyers still have a primary duty to their client’s best interests (I am a solicitor too). Greed is not a motivator when the referal fee price is the same to everyone, when all service providers are provided the opportunity to receive referrals, and when there is referral based on merit (which is something that good lawyers should not be afraid of). Lawyers lack skills to market themselves online and it is precisely because of low margins for this critically important type of work that lawyers are unwilling to pay monthly marketing fees and so a less risky pay-as-you-go referral fee model provides a new route of client accessibility to help through an increasingly transparent and verifiable online channel that clients increasingly want to use. We all want the same thing – lets put the client first.

  • Stephen Cadwaladr says:

    The world is going insane, or at least ‘the market’ is being used as an excuse to ignore ethical and moral responsibility.
    Referral fees are only paid or requested because of greed. The publicly funded ‘legal market’ is not a true market at all. A system is in place to provide those who would not otherwise be able to afford it with litigation and advocacy services, and the litigator and advocate paid (derisory) fees. The advocacy fee is paid by the government for advocacy. The use by litigators of advocates prepared to negotiate to pay some of their own fee to the litigator in order to secure work is a fraud. The only way to ensure quality, and to avoid other serious conflicts of interest, to revert to the system where the advocate must be independent of the litigator and have no financial or other connection with him, and the litigator must choose from a pool of such advocates. Only then will an advocate be chosen on merit in the best interests of the client and justice. Virtually no advocate instructed because he or she is prepared to pay a referral fee would be instructed on merit. The system is going to the dogs, and the payment of referral fees is a pernicious and fraudulent example of that trend.
    I should point out I am a member of the independent bar, but came to it years ago because of a belief in the system that then existed, though it was already beginning to be eroded. But I do not say what I say out of self interest. It is out of despair that a once honourable system, and 2 professions, have been ruined by people knowing the price of everything and the value of nothing

  • Richard Moorhead says:

    To make a positive case, the SRA have to show that referrals that ought to be made are not being made and that fees will help. They don’t seem to make that case here.

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