The SRA has issued an update regarding interest rates and client account, specifically focusing on the importance of paying interest fairly.
According to the Law Society’s recent financial benchmarking survey, many law firms have and still are being propped up by unusually high interest earned on their client account.
The ILFM recommends all law firms and their accounts staff to review their client account interest policies for appropriation and fairness, taking into account the current economic climate.
The SRA has stated that it expects firms to be talking to their clients or other connected parties about interest rates, and the regulator confirmed it will take action if firms are failing to interpret this subject to its clients fairly.
Within the Survey’s findings the data showed that chargeable hours are lower than normal. It suggests measuring what work is profitable from the face of it, but by also offering continued professional training, and a supportive and safe culture, this leads to long time profitability too.
"Capturing all time spent on a client matter, for all work types, is essential."
The Law Society recommends law firms introducing training on lock-up, pricing and time recoding.
Law Firm Lock-Up and Cashflow Online Training
Client Accounts and Interest Rates
The SRA’s Code of Conduct states that solicitors should properly account to their clients for any financial gains the law firm receives as a result of their instructions. The exception is of course, where the client has agreed otherwise, which is under Rule 4.1.
This transparent communication from the lawyer to the client regarding financial benefit from client account monies (because of their instruction for legal services), is equally vital to adhere to under Rule 7 of the SRA Accounts Rules:
"You account to clients or third parties for a fair sum of interest on any client money held by you on their behalf.
You may by a written agreement come to a different arrangement with the client or the third party for whom the money is held as to the payment of interest, but you must provide sufficient information to enable them to give informed consent."
To read the full article from the SRA click HERE.
Here are some other resources you might find helpful:
SUSPENSE LEDGERS/ACCOUNTS – how to stay compliant.
CREDIT CONTROL & CASHFLOW – from Simon McCrum
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