Who owns your law firm?
It is an interesting development, and one which I wish to share with a legal audience, that I have been contacted in recent months by several organisations who are looking to develop Law Firms that will be part owned by independent financial advisors (IFAs), or in fact any adviser authorised by the FSA, independent or not. This is in the anticipation of the 6th October, 2011 changes to Law Firm Regulation, leading to the ability of non solicitors to own Law Firms.
Indeed it is a Law Firm that made the most persuasive argument that I have heard yet for the introducing financial adviser (FA). Namely, that any work introduced by the FA would entitle him/her to a share in the fee income from legal work, and in time an equity share in the value of the firm itself.
How does it work?
The legal work would be done by the Law Firm, fully regulated by the SRA, and the IFAs share would be purely for the introduction alone. It is promised that for big fee generating cases this would be a considerable monetary share. I was interested to read this.
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Law Firms may wish to ask the following question of IFAs they work with: will you refer work on a fee sharing basis that would therefore isolate your firm from potential future work, some of which we might have introduced to you via reciprocal introductions at an earlier stage?
This is a new challenge to Law Firms that is far-reaching and serious. This was made all the more clear to me after recently seeing the speed with which entrepreneurial law firms have seized the nettle and developed attractive business models. I can only see this accelerating from 6 October onwards.
Even in recent years, well before the 6 October was even on the horizon, I was continually surprised by the number of FAs who were prepared to draft a client’s Will themselves, or introduce completely unqualified “Will Writers” purely in the hope of obtaining a £200 fee or referral fee. How much more will this culture be accelerated when they can take a much bigger share, and in higher value cases, where the work is being done is by fully regulated and well reputed legal personnel?
For my part, I will not refer work on such a basis.
This is because I prefer to work with Law Firms, and Accountancy Firms, on a reciprocal basis in order to provide complex and high value advice, and to differentiate from my competitors by offering technical expertise. A referral to a conglomerate on a fee sharing arrangement would harm, not benefit, the local reciprocal source of work. I am also sceptical as to the degree of care and skill given by such high volume large scale practices. It seems at odds with an offering which is complex work for the high net worth client.
As with any of the threats coming from 6th October I believe this is less likely to affect the high value added low turnover areas of legal practice. However, for the high volume areas of legal services, some of which can be very lucrative when done in a highly processed environment, the effect may be more noticeable.
I believe most FAs, and a sizeable if not majority of the IFA community within this, will be very tempted by such profit sharing arrangements.
To counter this solicitors and IFAs should look for areas to work together, in the local setting. For many years IFAs have faced threats to their work from the online and nationwide financial offerings, and they will continue to have their market eroded. A good local IFA will want to work with you in the knowledge that you will refer work to each other and not allow the larger conglomerate offerings to increasingly dominate.
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