Lisa Dixon from the Institute of Legal Finance & Management argues that firms should consider issuing separate terms and conditions with their client-care letters that deal specifically with the issues around client funds
Most of you reading this will have been familiar with detailed requirements of rule 2 of the 2007 Solicitors Code of Conduct regarding client care and should now have implemented the new provisions on client care in chapter one of the new Code of Conduct, which took effect from 6 October 2011. The Law Society has updated its practice note on client-care letters .
However, many of you may not have had the opportunity to review some of the more financially biased practice notes that the Law Society has issued over recent times, within which are further points that they would recommend are included in the client-care letter or your terms and conditions.
Looking at the Law Society’s practice notes, in chronological order (most recent first), I’ve noted for your ease of reference the practice note, date it was last updated and the Law Society’s specific advisement as to additional information that they recommend should be advised to your clients.
Deposit protection for client accounts (issued 23 December 2010)
“To limit liability you may update your terms of business provided you follow rule 2.07 of the code of conduct. You may also state in your terms of business that if you make a claim under the Financial Services Compensation Scheme (FSCS) in respect of client money on your clients’ behalf, you will, subject to their consent, give certain client information to the FSCS to help them identify clients and any amounts to which they are entitled.”
Informing your client about how their money is held will help you manage the situation following the collapse of a deposit-taking institution and you should consider the following:
- Explain it is unlikely that you will be held liable for losses resulting from a banking failure;
- Tell them the name of the deposit-taking institution in which their money is held;
- Explain that the £85,000 FSCS limit applies to the individual client, and so if they hold other personal monies themselves in the same deposit-taking institution as your client account, the limit remains £85,000 in total;
- Explain that if a corporate body client is not considered a small company by FSCS, then they will not be eligible for compensation;
- Tell them that some deposit-taking institutions have several brands, ie where the same institution is trading under different names. Clients should check either with their deposit-taking institution, the FSA or a financial adviser for more information; and
- Seek consent for the disclosure to FSCS of client details in the event of a deposit-taking institution failure.
Unclaimed client funds (issued 8 September 2010)
“Agreeing at the outset about how surplus funds will be disposed should help prevent future problems developing. This can be done by including information in the client-care letter about what will happen to monies in instances where clients cannot be traced after closure of a matter. For example, you may enter into an arrangement with a corporate client that small amounts relating to different matters are accumulated and then accounted for at agreed intervals, or alternatively donated to charity.”
Following my previous Legal Futures article  on getting debt management right, such agreement could be included in the client meeting agenda and then included in the client-care letter.
Telegraphic transfers fees (issued 30 July 2008)
You must advise the client of the basis and terms of your charges. The requirement goes beyond the client-care letter and/or the firm’s terms and conditions – the bill or any notification of costs must also distinguish between any disbursements or profit costs elements of the fee charged by the practice.
The practice note says: “You should tell your client that you are charging them the fee that has been charged to the practice by the financial institution executing the telegraphic transfer, and that this fee is a disbursement.
You must charge VAT on the fee that has been charged to the practice by the financial institution executing the telegraphic transfer, even if no VAT is charged to you. For more information see VAT on incidental expenses to clients: disbursements  on the HM Revenue & Customs website.
You must not include any profit cost element as a disbursement. For example, you must not include a fixed monthly charge by the bank for having an in-house terminal, or any internal staff costs.
If you charge the client an administration fee for arranging the telegraphic transfer you must inform the client and charge it as profit cost.”
In line with outcomes-focused regulation, it really is for each individual practice to determine how much information should be included in their firm’s client-care letters.
However, it is my view that it is time for every practice to consider having separate standardised terms and conditions – into which you can insert your interest policy as required by the SRA’s Accounts Rules – to sit alongside the client-care letter for each matter on which your client instructs you.
Lisa Dixon AILFM, FCCA, MAAT is cash office and compliance manager at midlands law firm Harrison Clark LLP and an executive council member of the Institute of Legal Finance & Management