Unexplained Wealth Orders: What we know one year on
Last week the SRA published guidance on its Transparency Rules which will come into force in early December 2018.
In June my colleague Iain Miller expressed his bemusement at the generally indifferent reaction of the professions to the price transparency agenda being implemented by legal services regulators. Now that the prospect of publishing costs information is no longer a vague and distant concept, our impression is that many firms now look upon price transparency as a necessary compliance step rather than a marketing opportunity and instinctively want to provide the least information possible. This is understandable: firms whose client profile is built on their reputation are likely to be concerned at the idea of being selected (or dismissed) by a new client on the basis of a search on a price comparison website. So what exactly is required? We have set out below some FAQs:
A: In December 2016 the Competitions and Markets Authority (CMA) published its legal services market study, in which it concluded that there was a lack of transparency for consumers in the legal services market, especially in relation to price, quality and service. The Transparency Rules seek to redress this by requiring the publication of certain information for certain legal services.
In its application to the LSB, the SRA stated: “Our objective is that consumers should have the information they need to make informed choices about the purchase of legal services. Specifically, we aim to ensure that consumers have the information they need about firms, the services they offer, the prices they charge and the protections they have in place. This will enable consumers to compare different providers and make informed choices about which provider will best meet their need”.
A: The Rules are currently limited to certain types of legal service provided by SRA authorised firms, and individuals providing services to the public from outside authorised firms (e.g in-house solicitors).
For members of the public, the services are:
For businesses, the services are:
In explaining the services they have selected, the SRA state in their post consultation position paper that they “…have chosen services in which we believe firms can fairly easily predict the activities that will need to be carried out and so fix or estimate prices.” In their application to the Legal Services Board (LSB) for approval of the Transparency Rules, the factors the SRA said they had considered in deciding which legal services should be covered included: “whether the service is relatively commoditised; whether distress purchases are common; the opportunity to work with other legal services regulators to develop consistent requirements; the current prevalence of price information”.
However, the SRA have made it clear that this is only the beginning: “Although firms will only be required to publish price and a description of services in these areas, we encourage firms to publish price and service information for additional legal services if they are able to do so”. The SRA have expressed their wish that the requirements “will act as a catalyst and that the market will respond by providing better information across the whole of the legal services market”. It is reasonable to infer that the SRA will in due course add to the categories of work covered by the Rules.
A: The Rules require SRA authorised firms to publish cost information clearly and prominently on their websites. This must include:
(a) the total cost of the service or, where not practicable, the average cost or range of costs;
In its guidance document, the SRA state that where a range of costs is published, there is a need to set out the basis for the charges, including hourly rates where appropriate and the factors which will have a bearing on the final price.
The SRA guidance also states that where different prices are offered for different ways of providing services (such as higher charges for face-to-face services than online services), this should be made clear.
(b) the basis for your charges, including any hourly rates or fixed fees;
(c) the experience and qualifications of anyone carrying out the work, and of their supervisors;
(d) a description of, and the cost of, any likely disbursements, and where the actual cost of a disbursement is not known, the average cost or range of costs;
(e) whether any fees or disbursements attract VAT and if so the amount of VAT they attract;
(f) details of what services are included in the price displayed, including the key stages of the matter and likely timescales for each stage, and details of any services that might reasonably be expected to be included in the price displayed but are not;
In their guidance document, the SRA state that it is important to specify exactly what is included in the price displayed even if the price is a fixed fee, in order to avoid confusion about what customers might need to pay extra for.
(g) if you use conditional fee or damages based agreements, the circumstances in which clients may have to make any payments themselves for your services (including from any damages).
The SRA’s guidance document also specifies that if your website uses a quote generator, the result must be produced directly without requiring any additional contact such as a telephone call.
The SRA is more concerned with the impact on the consumer than the specific pricing model used by a firm. As set out in its guidance document “Its purpose is to make sure that information on costs and services is as readily available to the public as possible, in a format that is accurate and easy for them to understand”. However, while there is no requirement to publish a binding quote for every possible scenario, the templates for pricing models included in the SRA’s guidance demonstrate that the expectation is for comprehensive and detailed pricing information. While these templates are for guidance only, it may be difficult for a firm to comply with the Transparency Rules without providing a similar level of information.
For example, for bringing and defending claims for unfair or wrongful dismissal, the template includes a range of costs for a simple case, a medium complexity case and a high complexity case and lists the factors which could make a case more complex. The template then sets out the key stages of a claim which the fees would cover and also provides information about possible disbursements, including an estimate for Counsel’s fees.
While a firm will not be bound by this information if unforeseen complexities arise in a case, clients will clearly not expect to pay significantly more than the prices published on the website. In order to maintain trust with clients, firms will therefore need to ensure the information they publish effectively manages client expectations as to potential increases.
A: The requirement to publish cost information about relevant services only applies where information is published about the availability of these services. In other words, where a law firm or sole practitioner provides relevant services to clients but does not publish the availability of these services, there is no requirement for prices to be published. This might be helpful for law firms which provide services to existing clients which do not form part of their normal portfolio of work and which are not therefore publicly advertised.
This raises the issue of whether firms which are averse to publishing price information could remove reference to the availability of relevant services from their websites in order to side-step the requirement to publish. This may appeal to well-established firms which receive the majority of their work through referrals and their general reputation and which therefore do not need to advertise the availability of certain services. The SRA considered this possibility in their application to the LSB, but their view was that “firms who choose to do this would be at a huge competitive disadvantage as increasing numbers of consumers use the internet to find and choose a legal services provider. Firms who choose not to publish the availability of their services will therefore struggle to attract new business. For this reason, we consider it very unlikely that firms would choose to take this route”.
As set out above, the Rules (at least initially) only require law firms to publish price information in relation to certain services for businesses and certain services for members of the public. There is no definition of what the SRA means by “businesses” within either the Rules or the Guidance. The Rules state that the aim is to help members of the public and small businesses to make informed choices and in their application to the Legal Services Board, the SRA stated: “We believe that our price publication requirements will most clearly assist individual consumers and small businesses… Large commercial clients are not at the same disadvantage in making informed purchasing decisions and are unlikely to use comparison information in the same way when choosing a legal services provider. The areas of legal services we have chosen are deliberately focused on issues most affecting individual consumers and small businesses.”
The SRA considered an exemption for firms who work exclusively for large commercial clients, but concluded that this would not be justified. In their application to the LSB the SRA stated: “Firms that specialise in providing relevant services to wealthier or business clients will need to comply with our price publication requirements.”
Firms which do not provide services in the specified areas will not have to publish any price information. However, the SRA clearly intends to widen the application of the Transparency Rules in time and so this freedom may be short-lived. Some of the existing services may also be wider than they appear on first blush. For example, there is no definition of what is meant by “debt recovery” – might this extend to litigation where there is a claim in damages of up to £100k? If so this would significantly widen the scope of services for which prices must be published.
A: Prices may of course vary greatly between different jurisdictions and it would be a huge undertaking for this information to be published for each office of an international law firm. While the Rules do not specify whether or not firms need to publish pricing information for their international offices, the terminology used to describe the legal services which the Rules cover implies that these are services in England and Wales. For example, residential conveyancing and probate (uncontested cases with all assets in the UK).
Moreover, the new SRA Handbook, which is due to come into force in April 2019, contains the SRA Overseas and Cross-Border Practice Rules, to replace the current SRA Overseas Rules. These Rules contain a modified version of the SRA principles and set out key standards relating to client money and assets, and information and reporting requirements. They are silent in relation to the Price Transparency Rules. This indicates that the Price Transparency Rules do not apply to overseas offices. While this seems to be the case, it would be helpful for the SRA to provide some clarity on this issue, particularly where services are being provided from an international office to clients in England and Wales.
The majority of respondents to the SRA’s consultation did not agree with the proposals in relation to price transparency. In explaining their reasoning for continuing with the proposals, the SRA refer to the fact that “63 percent of adults and 83 percent of small businesses see legal services as unaffordable”, and that where people deal with legal issues without the help of a solicitor, this is often related to cost. The SRA also state that price transparency in other markets has had the effect of increasing the quality of services or reducing prices.
The aims of making legal services more accessible and affordable for the public seem commendable, but will this be the impact in practice? Many lawyers would argue that their services are bespoke – each case being different - and pricing must therefore be given on a case by case basis. The challenge for law firms will be to publish prices which are necessarily generic but which remain meaningful for prospective clients. Given this difficulty and the resistance from the profession, introducing these changes gradually, starting with certain legal services, seems sensible. The SRA will then be able to fine-tune the provisions before they’re extended to other legal services. The impact this change will have on consumers and on the legal profession remains to be seen but it is clear that these Rules mark the beginning of a sea-change in the information provided by Solicitors.
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