The LSB has just published an informative 117-page cost benefit analysis of the impact of referral fees in legal services today. You can download a copy here. Good information and well worth the read and the LSB have yet to respond to these research findings.
Report Conclusions in relation to conveyancing:
There is evidence that the choice of conveyancer is determined by estate agents on the basis of referral fees and this has contributed to the trend towards having panels of conveyancers and national firms and away from using local firms. This trend had already begun before 2004 with large firms seeking to centralise referral arrangements and move towards using more formal panel arrangements. Smaller conveyancers who do not pay referral fees often have other arrangements in place with estate agents such as reciprocal referral arrangements regarding probate work or the need for a valuation in a matrimonial dispute or offering hospitality.
We do not find that referral fees impact the quantity of conveyancing undertaken which is instead based on the number of property transactions and re-mortgages. However, competition to access introducer panels has led to referral fees increasing over time from around £50 – £100 in 2004 to £250 – £400 today. There is no evidence that this is increasing conveyancing fees paid by the consumer which have remained broadly constant over time. In addition, the available evidence also suggests that the average conveyancing fee for those paying referral fees is lower (at £543) than those who do not pay referral fees (£687). This may reflect that formal arrangements have facilitated investment in technology that reduces the cost of the conveyancing process. [Inpractice Comment – not sure we agree with this conclusion. Owners of higher value properties – where quality of service has been tried, tested and proven from past experience – tend to use their existing solicitors. It’s a big jump to saying lower prices are due to technology …. although it could be!] Given that referral fees have risen but conveyancing fees have stayed the same, this reflects a transfer from conveyancers to estate agents. It is unclear if this has been passed into consumers in terms of the price that estate agents charge.
There is also no evidence that the quality of conveyancing was being reduced because of referral fees. For example: There was no evidence of problems regarding the title of property; Referral fees have facilitated significant automation of the conveyancing process and the use of non-qualified staff. While national conveyancers offer a remote service with communication by phone and email, compared to local conveyancers who may offer face-to-face services, there is no evidence that the different approach to communication reduces quality; National conveyancers are able to access information regarding searches implying that there is no local advantage. Further, small local conveyancers do not believe that their service suffers when they provide conveyancing advice for long-term clients who have moved out of the locality; and, Evidence on the number of complaints is low, customer satisfaction is high and the speed of transaction appears to be faster for those who pay referral fees – 57% of estate agents thought these firms faster compared to only 2% who thought those who did not pay referral fees were faster. [Inpractice Comment – our experience suggests that this is due to higher volume organisations not YET getting the right mix of people skills and technology working together properly. Not directly related to referral fees though.]
Report Conclusions in relation to personal injury claims:
There was no evidence that increases in referral fees had led to an increase in the price of legal services. Price does not play a strong role in personal injury cases because of the prevalence of “no-win-no-fee” agreements, but the majority of motor cases go through prescribed cost and fast track regimes in which legal fees are regulated.
There was also no evidence that referral fees were causing consumer detriment through a reduction in the quality of services. For example – Success ratios for motor claims remained constant over time at over 90% although interviewees indicated that liability was often clear and therefore quality could not be judged on success ratios alone; and information is readily available on the value that different types of standard claims should receive and there was no evidence that increases in referral fees were leading solicitors to under-settle so as to save themselves costs.
Furthermore, arrangements between large introducers and large solicitors usually have service level agreements associated to them in which lawyers must meet certain requirements typically related to communication and speed of response. In part these agreements are in place to help protect the reputation of introducers. Evidence is available on very high customer satisfaction levels and there are very few complaints made related to referral fees.
Referral fees have helped to facilitate the growth of CMC and insurer referrals through providing an income stream that can be used for both marketing and investment in technology to manage the claims process. Consumer evidence has supported the link between marketing and making additional claims which would not otherwise have arisen. There is no evidence that this has led to a deterioration of cases since success rates have remained constant. The increase in the number of claims has probably led to higher insurance prices although this has been partly offset by referral fee income. It is difficult to describe this as causing consumer detriment where consumers have valid claims. We note that concerns about some fraudulent claims have causes other than referral fees namely the (non-)verifiable nature of some claims.
Instead or using referral fees, lawyers working with some trade unions will instead often provide other legal services to the trade union for low prices or offer to conduct training and education for free. These arrangements have a similar economic effect to referral fees although they do not involve lawyers making payments to the unions. No evidence was found regarding any trend in the value of alternative referral arrangements used by trade unions. No evidence was provided that any change in the number of cases or values of claims in employer liability was linked to referral fees or their equivalent.
We will give you our further thoughts when we dig a bit deeper into the report. We’d be interested in your thoughts too.
The report was commissioned from Charles River Associates (CRA) and forms a key part of the LSB’s policy analysis. Further evidence is expected from the LSB’s Consumer Panel when they publish their consumer evidence – this is expected before the end of May. The LSB will then consider these reports together with other evidence before responding.