so long referral fees, hello marketing fees

So we have the news today that referral fees in PI cases will be no more, and by Easter 2012. Not long for the workarounds to get underway.

Just what will the impact be, for the existing claims managers, the PI lawyers currently at the end of the foodchain, and the wider legal industry?

Well, primarily referral fees have existed, nay flourished under a ban before, and it is hard to think that some redefining and slight shifts in services provided won’t mean that they will still be with us, in one guise or another well after the ban is in place. Also, quite how regulators will police this ban effectively under an outcomes focussed regime, which should see a move away from the previous i-dotting and t-crossing, remains to be seen. Significant resource will be required, and I’m not sure its there.

The nettle of banning claims management companies per say, has not (yet) been grasped, so they and their employees are going to have to find something to do. Of course, the next obvious step for the Claims Managers is to bring the only bit of the legal process they can’t do (the reserved element), in house, and do it themselves. So lawyers who are rubbing their hands together this morning with glee at the demise of the referral fee, may also wish to pause to consider that this may also mean the end of their sources of work, if the claims managers look to create ABSs and do the work legal themselves.

Canny law firms have already been in discussion with their referrers to see how they can be working with ABS claims managers in the post-ABS world; whether that is under JVs, mergers or providing white labelled services. Expect these conversations to be hotting up.

The wider implications for the rest of the legal, and parallel legal services industry will also no doubt be causing heated debate in board rooms and partners meetings up and down the country. As Legal Futures have reported, there is not “currently” an apetite from the Government to seek to ban referral fees in the conveyancing industry as well, but it has to be said, housing affordability, the state of the market and the disarray the mortgage market continues to wallow in, means that securing peoples homes has the makings of becoming just as much a political hot potato as PI (and surely the government will have more appetite for cutting out costs from the middlemen, rather than reducing revenue from stamp duty). Once again, the threat which the withdrawal of referral fees present to the existing business models of many panel managers, estate agents, licensed conveyancers and solicitors must surely be considered, and plans made accordingly. Perhaps the lead may be taken from the lenders here, and we may see emerge a new wave of “compliance fees” being charged by the front end suppliers of work to their panel solicitors.

Creativity and innovation in the delivery of legal services was one of the aims of the Legal Services Act, and if nothing else, I think the referral fee ban will certainly expedite that.

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One Response to “so long referral fees, hello marketing fees”

  • David Swede says:

    Interesting post and a few more points :-

    1. Lawyers take the stick because they don’t do their own marketing properly and are still dinosaurs in many respects – the claims farming companies are simply doing the lawyers marketing for them. Lawyers wake up !

    2. Many personal injury law firms also pay the insurers for referrals – the insurers are simply passing on the bad PR to the law firms about high premiums for insurance. they have been a part of the referral fee merry go round too and have done little to stamp out the very obvious widescale insurance fraud.

    3. yes, you are right, inducements have been around before referral fees were allowed and are likely to resurface again when referral fees are banned, notwithstanding the Bribery Act or anything else.Cynical but almost certainly true.




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