Arrangements whereby a client is introduced
to a conveyancer by an agent or broker through a third party panel manager have
over the years become a major feature of the property industry.
It was only recently the online B2B
platform, ULS Technology, announced the ‘take over’ of the Conveyancing
Alliance for an initial £7.2m. This move
was herald as part of ULS’s strategy to become the Country’s leading handler of
conveyancing.
So how do these arrangements work?
The model is pretty simple. The panel manager provides agents, brokers
and lenders with online access to a managed panel of conveyancers to which
their clients can be introduced. The
access to, and management of, the panel of conveyancers is made possible through
an online platform and this technology allows the referrer to choose a conveyancer
from the panel, to view the price charged by them for the conveyancing work and
to enable the referrer to earn and track a commission for the
introduction.
The panel manger charges a fee for
the management of the panel solicitors, and also raises additional
revenue through selling ancillary services such as
searches and identity checks to the panel conveyancer.
The panel managers are not
regulated even though the majority are heavily involved in generating a fee
quotation for the end client (consumer) which will detail all of the fees
payable and which will include the hidden commission payable to the referrer and the
fee charged by the panel manager for the service/facility it is providing to
the referrer.
The quoted fee will also include
the cost of the ancillary services provided by the panel manager such as the
cost of the searches.
The success of these panels is
very much dependant on bringing more referrers on board and making sure the
referrer persuades the client to make use of the panel of conveyancers
provided. The will often be guided by
the agent or broker on choice of legal representative ( normally on price) and it is this influence which has played a
major part in the growth of these arrangements.
So what does this mean for the end client?
The panel manager will no doubt
argue that those who are placed on their panels are closely vetted and that
through review systems, they can guarantee the conveyancer appointed to handle
the client’s transaction will provide a reasonable level of service.
In addition to this the panel manager will be
there to chase the panel conveyancer, and also handle complaints and
generally oversee, through the panel manager technology, the overall progress of
the transaction. Some of the technology will also allow clients to view the
progress of the transaction online.
There is no doubt that many of these panel solicitors provide a first
class service to the client.
The major problem lies with the
cost of the transaction.
Not many clients know that when a
quote is produced by the panel manger on behalf of the panel conveyancer that
the fee for the legal work will have built into it not only the fee paid to the
referrer for the introduction ( commission ) but also the panel
manager's fee. In addition to this, the quote
will often include the cost of searches and other third party costs which will
be a much higher level than that payable had the client sought a quote directly
from the conveyancer.
The reason for this is that many
panel managers make it a condition of membership that the panel conveyancer
must purchase services from the panel mangers chosen supplier. The reason for this is obvious. The panel manager is purchasing the service
in at a low price and then often charging the client through the panel conveyancer
a much higher fee. Often the client is paying £100-£150 more for the searches
than they would had they instructed the conveyancer direct.
Don’t get me wrong, providing
commissions for referrals is disclosed ( and are not too excessive) by both
the referrer and the conveyancer, there is nothing untoward about it – it’s a
practice which has featured in most service industries for centuries.
The real question is whether
knowing how these arrangements work, can it be said that the panel conveyancer
in accepting the client’s instruction is acting in the client’s best
interests? In other words should the
panel conveyancer who will only be picking up a fraction of the fee quoted and
payable by the client, be doing more to protect the client?
It is not unusual for a panel conveyancer to receive a £250 fee out of a fee quoted to the client of £1,000!
So what are the obligations on the panel conveyancer?
To begin with, I do understand why
many conveyancers are attracted to the lure of a panel arrangement. Most of those who work on these panels do so
to ensure a continuous flow of work and comprise mainly of those large
conveyance providers who are able to make money on the basis of volume
transactions. In the main they provide as
I say above, a good service.
The big question however is, are
some of these conveyancers failing their clients by not highlighting the
details of these panels especially when it comes to presenting and explaining
fees.
The regulatory and legislative framework
The starting point for those
regulated by the Solicitors Regulation Authority is the SRA Code of Conduct
2011 ( The Council of Licensed Conveyancers' Handbook contains similar obligations), and in particular the ten mandatory Principles which include the obligations
to act with integrity, not to allow one’s
independence to be compromised and to act in the best interests of the each
client.
The outcomes used to describe what
is expected to achieve compliance with the Principles are helpful in
understanding what is required of a panel conveyancer working within a ‘panel’ arrangement.
The relevant outcomes in this
context are as follows:
- To treat client’s fairly
- To only enter into fee arrangements which can be considered suitable for the client’s needs and circumstances and take into account the client’s best interests.
- To ensure clients are in a position to make informed decisions about the services they need, how their matter will be handles and the options available to them
- To ensure clients receive the best possible information, both at the time of engagement and when appropriate as their matter progresses, about the likely overall cost of their matter;
- To properly account to clients for any financial benefit you receive as a result of your instructions
- To ensure that one’s ability to act in the best interests of the client is not impaired by, inter alia, commercial relationships.
- To ensure one’s independence and professional judgement are not prejudiced by virtue of any arrangement with another person
- To ensure clients' interests are protected regardless of the interests of an introducer or fee sharer or your interest in receiving referrals;
- To clients are informed of any financial or other interest which an introducer has in referring the client
- Whenever one recommends that a client uses a particular person or business, the recommendation is given in the best interests of the client and does not compromise one’s independence.
- To ensure clients are fully informed of any financial or other interest which one may have in referring the client to another person or business.
- To ensure clients are in a position to make informed decisions about how to pursue their matter.
- To only put the client in touch with an unregulated business where the client has given informed consent.
In looking at the conduct and assessing
whether or not the Principles have been contravened The SRA set out examples of
the type of behaviour expected and these are labelled as ‘indicative behaviours’. They include:
- explaining any arrangements, such as fee sharing or referral arrangements, which are relevant to the client's instructions
- clearly explaining fees and if and when they are likely to change
- ensuring that disbursements included in your bill reflect the actual amount spent or to be spent on behalf of the client
- any referral to a third party that can only offer products from one source is made only after the client has been informed of this limitation
It is clear from these
requirements that a responsible conveyancer will be expected when working on a
panel to be alert to the following:
- Obtaining referrals from one source and becoming economically dependent on that source could be viewed, per se, as a situation where there is a real risk of the panel conveyancer’s independence being compromised. Given this, a responsible panel conveyancer would need to demonstrate that on receiving the instruction, that the client has been made aware of the relationship with the panel manager, perhaps even to the extent of explaining the structure of the arrangement and the contractual requirement to only make use of the services such as searches supplied through the panel manger.
- Information on fees and how these are split should be make known to the client at the outset and should be clearly shown in the client’s bill. The client should be told how much the broker/agent is receiving and how much of the quoted fee is to be paid to the panel manger. The panel conveyancer should insist on seeing what information on costs and the split between all interested parties has been given by the broker/agent and panel manager. The panel conveyancer should also be privy to what commercial arrangement exists between the introducer and the panel manager. The client should be told at the outset about the probability that the panel Manger will be making a profit from the sale of searches and provision of other services which the panel conveyancer is obliged to supply under the commercial arrangement with the panel manager.
- Some agents and other introducers who using the panel manager to engage a conveyancer make their selection not following extensive due diligence but on price. The reasoning here is that the less the lawyer is paid the more there is to share with the introducer and the panel manager. For this reason some panel managers put pressure on the conveyancers to keep their prices low, particularly if they are looking for high volumes. Knowing how this works panel conveyancers need to make sure that the client is happy to proceed with them and that the client’s expectations (based on a much higher fee than the conveyancer will receive for the work) can be safely met in full. It is important that the client’s interests are fully protected regardless of the interests of the introducer/panel manager.
- The close working proximity between the introducer, panel manger and panel conveyancer can create confusion for the client, and bearing in mind the financial connection between them, there is a strong case that the consent of the client to be part of that arrangement should be sought at the outset. The reasoning behind this is that as the introducer and panel manager do not offer legal services they will be viewed as unregulated businesses.
The sanctions for proven contravention of the Principles can include firm closure and/or a requirement to refund to clients fees which the client would not have incurred had there been compliance.
This could lead to a business having to recompense all clients for which the business has acted in the past in connection which the arrangement.
Panel conveyancers also need to
be aware of the requirements of the Consumer Credit Act 2015 as can be seen
from below.
So what rights do clients have if they are involved in an arrangement
of this type?
If there is a secret profit
contained within the quote for the service irrespective of whether the panel
conveyancer benefits from it, it is arguable that failure on the part of the
panel conveyancer to make this clear to the client at the outset, or more
specifically act to protect the client’s interests by ensuring there is
complete transparency on fees, the client has various options which are not
mutually exclusive.
The client can raise a complaint
with the Legal Ombudsman who has the power to require the offending panel conveyancer
to pay compensation up to a limit of £50,000 including compensation for
emotional distress. The LeO is not very forgiving when it comes to dealing with
a proven complaint of hidden fees and or failure to provide clear information
on fees and how these are calculated.
The client also has the right to
report the conduct to the applicable regulatory body for investigation and this
could give rise to disciplinary action if it is found the panel conveyancer has
contravened any of the relevant principles of the Solicitors Code of Practice.
A client can also challenge
hidden fees and charges under the Consumer Rights Act 2015 as this legislation
means that key terms of a contract, including price, may be assessed for
fairness unless they are both prominent and transparent.
Terms may be deemed unfair if:
• they
are contrary to the requirements of good faith - meaning they must be designed,
negotiated and entered into with the consumer in a fair and open way
• they
cause a significant imbalance between the rights of the supplier and consumer
to the detriment of the consumer
If the court decides that a term
is unfair the client may be able to ignore the term or even cancel the contract
without having to pay a cancellation fee.
Conclusion
It is clear conveyancing panels
are unlikely to disappear and there will be conveyancers who will wish to continue to use
the service they provide. Commercially I can understand this and
providing there is complete transparency as regards fees and clients are made
aware of how the arrangement works, there should be no reason to doubt the
longevity of this model.
However, there are inherent risks associated
and conveyancers do need to considered these very carefully, especially given
the severity of the sanctions that can be imposed.
The safest course is to look to
establish and work within much simpler referral networks where there is greater
control over the relationship and where it is far easier to ensure the clients
best interests are served and protected.
For the client the best option
and 'no brainer' is to look to engage a conveyancer direct and not through an intermediary, unless the client is happy to be guided by an introducer and is aware of the
financial relationship, if any, which exists between the referring agent/broker
and conveyancer.
David Pett
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com
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