The Hunt Review – What does Lord Hunt’s review of the regulation of legal services mean for the Private Client Practitioner?
The publication of Lord Hunt’s report into the regulation of legal services on 5 October 2009 seems to have had a somewhat low key response so far. In 115 pages he addresses the profession in the hope of helping ‘to build an effective, proportionate regulatory regime that would serve the public interest in line with the statutory regulatory objectives.’ What are the main issues he addresses and what will his proposals mean for the beleaguered probate practitioner?
1. Professionalism – Lord Hunt notes that “within the legal sphere the concept of ‘reserved activities’ now separates the professional practitioner – who is subject to codes of conduct and ethics – from the mere provider of legal services”. The traditional approach to regulation was self regulation but the general public’s concern about self interest has resulted in a new regulator, the Legal Services Board (LSB), a government agency accountable to Ministers and Parliament and not the profession. It is designed to oversee the specialist regulator, the Solicitors Regulation Authority (SRA), rather than each solicitor since it cannot have the specialist knowledge which the SRA has of the profession.
Lord Hunt recommends that we should move to a principles based regulatory system for anyone regulated by the SRA which at its centre has Rule 1 of our code of conduct as its foundation stone. He believes that if any legal practitioner can demonstrate that he or she has abided by the core duties there should be a strong presumption in their favour as far as the SRA are concerned.
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Whilst we are now individually regulated as well as regulated through the entity which supplies legal services Lord Hunt has emphasised the need for regulatory bodies to work together to minimise ‘double’ regulation. He recommends that the SRA should set itself the target of reducing the costs of legal regulation.
2. Authorised Internal Regulations (AIR) – the argument adopted from Nick Smedley’s report on the regulation of corporate law firms is that those individuals responsible for regulation must have a good knowledge of the working methods of those whom they regulate. Lord Hunt does not think there should be one rule for the corporate law firm and another for the High Street private client firm. Instead he argues for AIR to be available to all firms who are able and willing to set up robust internal governance systems which meet the standards set for compliance. It is welcome that instead of creating a divided profession Lord Hunt is encouraging all firms to aspire to AIR.
Adopting this approach to regulation will as Lord Hunt says require a seismic shift in attitudes from both the regulator and the regulated community. A system which assesses the potential risk that an entity poses from its business model, its clients and its practitioners, rather than assessing risk on the basis of complaints or other post hoc information.
3. Alternative Business Structures (ABS) – The LSB has clearly stated that it wants the first ABS licences to be issued in mid 2011. Lord Hunt cautions against plunging in too quickly and emphasises that once the first ABS is permitted the legal landscape in England & Wales will change forever so it is crucial to ensure proper consumer safeguards are in place first.
What is required is to ensure suitable professional standards are maintained across the regulated sector and that no improper commercial advantage can be obtained by using a different business medium to undercut anyone by offering a service that is significantly below those standards.
The SRA, as the legal regulator, will under the Legal Services Act 2007 be able to regulate all firms involving different kinds of lawyers and non-lawyers who will be providing legal services. The Act required that firm-based regulation should sit alongside the regulation of individual solicitors. Lord Hunt refers to a contribution from the Legal Policy Services Institute of the College of Law as to how the new system should operate:
“The regulation of individuals should … be concerned with matters of professional qualification, admission and licence to practise, continuing competence and compliance with professional ethics, and the discipline of members of a profession. Entity regulation should be concerned with the establishment and performance of the entity as an organisation (usually a business) delivering legal services, procedural compliance, complaints, ownership and continuing viability.
There is a danger of a regulatory maze within ABS where each member of the ABS will be accountable to their own professional body for conduct and disciplinary matters whereas day-to-day regulation of the practice will be handled by the entity regulator. Lord Hunt is not against ‘regulatory shopping’ i.e. choosing your preferred regulator where more than one may be relevant but this in his view should only be based on ‘style’ and not substance. By that he means that methods of supervision and enforcement will differ but the ‘essential regulatory standards’ must be identical. He is a strong advocate of the SRA as the regulator of ABS and he has criticised the SRA for seeking only to enforce professional indemnity insurance for the provision of regulated legal services within an ABS. Lord Hunt recommends that there should be suitable indemnity insurance for all the services provided by an ABS; a fit and proper person test for those senior non-lawyers within ABS and the need to regulate them along similar principles for governance and compliance with the AIR approach to law firms.
4. Extension of the regulatory net to include Will writing, probate and claims management companies – hidden away in page 80 of Lord Hunt’s report is the short discussion of the extension of the regulatory net. He mentions that there was unanimity of view across the profession and bodies representing consumers that the regulatory net should be extended where consumers do not enjoy regulatory protection.
Whether Lord Hunt’s view that the extension should include Will writing, probate and claims management companies remains to be seen but it is welcome at last to see someone of stature make the point that the lack of regulation and professional indemnity insurance cannot be right and that the consumer and public interest will be better served by an increase in consumer protection.
Professionalism in private client work
SRA research earlier this year found that 83% of the general public who have used a solicitor in the past five years were satisfied by their performance, which was up from 65% in a similar survey conducted in 2007. Without being complacent this does underscore the fact that individual relationships between clients and their solicitors are strong.
A lawyer’s prime responsibility is to the rule of law and the second is the relationship with the client which is backed up by a code of conduct and an ethical code that ensures that the client’s best interests are at the root of good advice. This is so true of the relationship which the private client practitioner has with his or her clients. In order to give appropriate advice the practitioner has to earn the trust of his client and this manifests itself in for example, the need to take only Will instructions from the client and no-one else freed from the spectre of undue influence; or ensuring the trustees of a trust act only in the interests of the beneficiaries of the trust and not in their own self-interest.
The third responsibility is to the profession as a whole so as not to bring the profession into disrepute. Sadly, this is where sometimes those probate practitioners who embezzle funds from estates do all of us who work in this field a disservice and why it is important to have a compensation fund.
Lord Hunt believes that people choose to go to a solicitor because they do trust them, but in the world of the commoditisation Will writing and probate practice is increasingly seen as a business which anyone can do for which only a modest fee is payable. It is not enough to say that ‘Solicitors should vigorously reassert their professional standards’ when the cost of compliance to remain a ‘solicitor’ makes the provision of those commoditised services more expensive at a time when the general public is looking for lower prices.
What Government and its agencies such as the Office of Fair Trading are keen to avoid is the use of regulation to act as a barrier to new entrants to the market and therefore act in a detrimental way for consumers who are looking for real choice between types of providers.
Comparison is made between the CPD requirements and revalidation processes for doctors compared with solicitors. Lord Hunt is anxious to revitalise CPD for lawyers and recommends increasing the structured CPD hours within the 16 mandatory hours from 4 to 8 and including a prescribed element of refresher compliance training for all solicitors.
He also suggests the development of a fellowship accreditation for solicitors who reach an agreed professional standard which is significantly superior to the mandatory minimum. It is not clear whether this would be in a particular specialism or in some overarching capacity, although if the latter it is hard to conceive how it would be assessed.
These suggestions will undoubtedly find favour with the Trust & Estate community given the development of the Probate Section as the first of the Law Society sections and the birth of STEP as a new professional body dedicated only to Trust & Estate practitioners.
Authorised Internal Regulation
In recent years risk management have become buzz words and many firms of all shapes and sizes have begun to think about the hazards of practice in their particular chosen fields. There is a real danger with the downward pressure on fees for core activities like Will drafting and Probate to cut corners but a genuine re-think of how we offer our services can be both useful and effective. For example, starting with a root and branch review of the value of your service offering to clients and how that would meet the core principles in Rule 1 of our Code of Conduct.
Market research in a number of sectors has shown that investment in “service recovery” invariably pays off in profits: good recovery from mistakes ⇒ builds client loyalty ⇒ client loyalty is good for profits.
There are three main components of good service recovery:
- Getting your service systems right in the first place, to minimise the need for recovery
- Dealing effectively with complaints; and
- Anticipating the need for recovery by having systems in place to handle it
What is the current quality of your firm’s service delivery and how you can provide value for money and added value in the client’s eyes?
Consider what a client is going to want from you or your competitor by way of service – usually it is speed, openness about how much the process is going to cost; to be kept informed of progress and then soft issues like to receive sympathetic, friendly service. Does your personal approach and that of your firm match up to this?
AIR will surely be about being first rate at the handling of clients, estimating of fees and keeping people up to date. It will also mean you will a leading probate player in your area. So working towards AIR might achieve more individual control over how you do things rather than thinking you have to follow a set method to be compliant and have commercial payback as well. Be honest – how good are you and your team at these things?
Buying decisions by clients as to whether or not to use your service are made on trade-off between cost, value and quality.
Superior delivered value
Superior Delivered Value (SDL) = Total Value offered to a client less the Total Cost to the client
Total Client Value comes from:
- Services value
- Products value
- People value
- Image value
Total Client Cost comes from:
- Monetary price
- Time cost
- Energy cost
- Psychic cost
What might be examples of the cost, value and quality components in a Will making service?
|Cost Components||Value added components||Quality components|
|• Reasonable fee||• Home visits||• High standard of client care|
|• Special promotion||• Accessibility of office||• Optimum office environment|
|• Loyalty bonus?||• Flexible opening hours||• Experienced and skilled practitioners|
|• Duty of care|
|• Record keeping systems|
|• Easy to understand service|
Value chain activities are categorized into two types:
- Primary activities – such as legal work categories; marketing, analysis and advice
- Support activities – firm’s infrastructure; personnel, IT, Library etc.
For a Will drafting service the Primary activities will include:
- Marketing the service, including providing cost information
- Collection of information about the client, his/her assets, dependents and needs in a way which is easy to manage and verify
- Legal analysis of the information against current law and taxation with recommendations of how to approach Will drafting
- Reporting to the client with a draft Will and an explanation of the clauses
- Finalising the Will and checking, providing copy, secure storage of the original, invoicing in line with information provided
Support activities will generally include
- Law firm infrastructure
- Human resources – the knowledge, attributes and skills of your staff; the management of people and their development
- IT – used and developed by the firm
- Physical assets owned by the firm e.g. offices, library and other equipment
Given the competition in the Will drafting arena from unqualified practitioners benchmarking not just the other solicitors’ value chains (which is difficult outside groups such as LawNet or outside local areas), but other organisations or firms that might see this as a service to offer could significantly differentiate your firm from not just other law firms but other providers of similar services who if they are providing services within the regulatory net will also have to be compliant.
Alternative Business Structures
- The local family undertaker
- A local land and estates agent of repute capable of running a property shop and of providing valuation and map preparation services
- A specialist professional running a team of paralegals using a first class case management system and estate accounts packages via networked computers
- A limited number of solicitors able to deal with technical queries and instruct Counsel or deal with tax matters
- A marketing department focused on creating useful referrals; web site, blogs, podcasts and information services accessed on line by customers
- Excellent benefits package for staff with a crèche, part-time working encouraged; training schemes; and opportunities to manage regional multi-disciplinary teams
- Networked systems allowing for home-working managed by a team of IT experts always on the look out for ways of improving the workflow and cashflow of the business
- Central low cost office space located in an inexpensive area of the country with a facilities manager
Extension of the regulatory net
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