Month: December 2012

In this brave new world of OFR, we are faced with, amongst other things, as Donald Rumsfeld said, “known unknowns. That is to say, there are things that we know we don’t know.” At the top of the list for many firms is what is meant by Outcome (1.1) “you must treat your clients fairly”.  We know that we have to treat clients fairly, but judging from the SRA’s recent research on attitudes to compliance[1], many firms are not confident that they are compliant with this critical outcome.

Of course, an important clue to the rationale for the Legal Services Act 2007 was the title to the 2005 White Paper “Putting the Consumer First”. In recent times, the focus has been on who will become an ABS but regardless of the type of structure, the consumer should be confident that they will receive the service that they want, at the price they want and in the way they want. If we treat our clients fairly (TCF), we should be able to achieve that outcome.

You may say, solicitors have always acted in the best interests of clients, we have an ethos and philosophy of looking after our clients. Whilst some firms may be quite good at client care, the reality is that we have not provided clients with accurate costs information (even after we were exhorted to do so in 1990) nor are we shining examples of keeping clients properly informed or even doing what we said we would do and on time. The Legal Ombudsman’s (LeO) website provides recent examples of how we fail to treat our clients fairly. And when you are asked what you do at a dinner party, what is the usual reaction? Sadly, it is unlikely that your companion will tell you that all solicitors provide a wonderful service and that our fees are reasonable!

How do you change that perception? How do you ensure that everyone in your firm really does “put the client first”?

One way is to learn from the FSA experience, as Ian Muirhead suggested (OFR: the experience of the Financial Services Authority, Issue 10 November 2010). The FSA has invested considerable resources to the TCF initiative and whilst the language may be different, the concept can be translated to legal services. By taking a long hard look at how we provide services to clients and being committed to improving what we do and how we do it, we can ensure that the fair treatment of our clients is at the core of our corporate culture. Many of the new entrants to the legal services market already “put the client first” and in order to survive in a more competitive marketplace, you need to review your current approach and ensure that the consumer’s interests come first.

You will need the commitment and support not just of the COLP and COFA but of the whole management board, so that everyone is clear that this is not open to negotiation and that there is a real desire to change the culture.

So where do we go from here and how do we achieve that change so that our partners and therefore our fee earners give clients the right service for their needs as well as appropriate information to enable them to reach informed decisions. Remember it is not a “one size fits all” approach nor does TCF mean that every client is satisfied, a satisfied client could still be treated unfairly. However, if a client is dissatisfied but you can show the LeO that you treated the client fairly, you are in a much better position to deal with the complaint.

Lessons from the FSA

The Financial Services Authority (FSA) introduced “Treating Customers Fairly” to ensure that financial advisers put the interests of their clients above their own, following the various mis-selling scandals. The aim was to raise standards and increase confidence in the financial services industry so that consumers fully understood all aspects of the financial products that they buy and to minimise the sale of unsuitable products before, during and after the sale.

As the Legal Services Consumer Panel said, solicitors need to deliver a cultural shift that ensures that core outcomes for clients are the dominant driver of business operations. (Indeed, they recommended that the SRA include a similar concept to TCF in the new Code.) Clients need to be confident that we are putting them first and treating them fairly. We need to focus on providing the best service possible and striving for continual improvement. It is worth bearing in mind that solicitors regulated by the FSA have already implemented the TCF regime and the rest of the profession needs to catch up!

The FSA identified 6 outcomes to be achieved by the TCF initiative, which provide an indication of how we should approach TCF;

Outcome 1 – Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.

Outcome 2 – Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.

Outcome 3 – Consumers are provided with clear information and kept appropriately informed before, during and after the point of sale.

Outcome 4 – Where consumers receive advice, the advice is suitable and takes account of their circumstances.

Outcome 5 – Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect

Outcome 6 – Consumers do not face unreasonable post- sale barrier imposed by firms to change product, switch provider or make a complaint.

Whilst the language used is that of the financial services world, we can start to see the similarities between those outcomes and those in chapter 1 of the 2011 Code. By comparing the two sets of outcomes, we can build a picture of how to embed TCF in our own firms.

Outcome – good client care

The introduction to Chapter 1 of the Code sets the scene for TCF making it clear that we need to provide a proper standard of service, which takes into account the individual needs and circumstances of each client. This includes providing clients with the information they need to make informed decisions about the services they need, how these will be delivered and how much they will cost. The introduction also explains that if clients are not happy with the service, they need to know how to make a complaint and that all complaints are dealt with promptly and fairly.

Outcome(O)(1.1), like FSA Outcome 1, contains the overarching TCF obligation, although with less clarity. We must also remember principles 4 and 5 so we act in the best interests of each client and provide a proper standard of service to your clients.

FSA Outcome 2 has no obvious equivalent in chapter 1 but the idea that you ensure that the services you provide to your clients are designed to meet the needs of identified client groups and are targeted accordingly should not be alien to a well run business. The fixed price divorce designed for the amicable and uncomplicated divorce or the “mirror Will” package aimed at couples are examples. What would not be treating the client fairly would be a conveyancing package which contained hidden costs or advertised an estimated fee pitched at an unrealistically low level (see Indicative Behaviour 8.7).

FSA Outcome 3 requires clients to be provided with clear information;

• Solicitors must provide the client with clear information so that they can make informed decisions about the services etc under O(1.12).
• Your terms of business will contain the basic information required, e.g. details about paying costs, data protection, complaints etc. Ensuring that your terms of business include all the regulatory requirements including the various European requirements is a challenge but the Law Society’s Practice Notes on client care letters, cancellation of contracts and the Provision of Services Regulations 2009 are very helpful. 
• Your engagement or client care letter will set out the specific information for that client’s matter, including details of who is dealing with the matter, etc.
• O(1.13) is the key costs provision and the wording is very similar but not identical to rule 2.03 of the 2007 Code, the requirement is now “best possible information” as opposed to “best information possible”.
• Under the 2007 Code, you could avoid providing basic client care information if you could demonstrate that it was inappropriate to do so, e.g. for repeat or sophisticated clients who knew their rights. It now seems that you may need to provide the information in all cases to meet the outcome even if the client does not want the information.
• It is clear that we must make a real effort to improve the information we give to clients both at the outset, during the matter and at the end of the matter. All too often the client receives a nasty shock because the bill is more than he expected. Sadly, if you have exceeded your estimate, you will also get a nasty shock when your client care team explains that you cannot recoup the difference!
• The other “information outcomes” are;

• O(1.7) (whether your services are regulated);
• O(1.8) (information about your indemnity insurance);
• O(1.9) and O(1.10) (complaints);
• O(1.14) (right to challenge etc your bill);
• O(1.15) (account for financial benefit).

(Most of these should be familiar as they are similar to the rules in the 2007 Code although you should read each one carefully and compare the wording to ensure you have identified any subtle differences.)

• The new information requirement in O(1.7) is for ABS providing both regulated legal services and non regulated services e.g. funeral services.

FSA Outcome 4 requires advice to be suitable and appropriate. SRA Principles 4 and 5 again apply, you cannot comply with those unless the advice is suitable and takes account of the client’s circumstances and;

• O(1.2) requires you to provide services in a way which protects the client’s interests in their matter, subject to the administration of justice;
• O(1.4) requires you to have the resources, skills etc to carry out the instructions. Without those, you cannot ensure that the advice is suitable;
• Equally O(1.5) makes it clear that your service must be competent, timely and take account of your client’s needs and circumstances;
• O(1.6) requires that your fee arrangements are legal, suitable and take account of the client’s best interests.

FSA Outcome 5 relates to products performing as expected, to the service being of an acceptable standard and as the client has been led to expect. O(1.5) and O(1.12) set out the obligations and the key will again be to assess what services you are providing, how you are providing them, whether the service is of an acceptable standard and ensuring you manage expectations. Promising the “demanding” client that you will phone them once a week without fail is almost guaranteed to produce a complaint. Even in the current climate, perhaps you should simply turn the “difficult” client away at the outset providing you comply with O(1.3). It is unlikely that you will be the “knight in shining armour” for the client who has already been to three other firms, it is more likely that they will complain about you as well. 

SA Outcome refers to unreasonable post sale barriers. The equivalent is contained in O(1.16) (if you discover an act or omission) and O(1.11) (complaints are dealt with promptly, fairly etc). Good liaison with your insurers keeps premiums down and they can offer risk management advice on handling claims effectively.

You should already have robust complaints handling processes in place, the original requirement was introduced in rule 15 of the Solicitors Practice Rules 1990. The Solicitors” Costs Information and Client Care Code 1999 and the 2007 Code have not altered the fundamental requirement for a complaints handling procedure but the level of sophistication required to handle complaints effectively has changed substantially. The Practice Note on complaints management is helpful and more detailed assistance is available from the Law Society’s Risk and Compliance Service. The Complaints Partner (as well as the COLP) should be familiar with the Legal Ombudsman website and use the information to improve the way in which complaints are handled.

What Next?

There is of course a world of difference between identifying what TCF means and actually implementing it to bring about cultural change/enable you to demonstrate to the SRA that the fair treatment of clients is central to the corporate culture.

The FSA identified a number of key drivers as being critical to establishing the right culture, those drivers equally apply to solicitors/ABS;

• Leadership – the partners/team leaders must “lead by example”, treating clients appropriately and with respect, highlighting good examples of TCF and tackling bad examples in a constructive way. Good supervision of staff (see the Law Society’s Practice Note on supervision) is critical as is good internal communication about why TCF matters;
• Strategy – the firm’s vision should be clear and support the fair treatment of clients. TCF should be reflected in the planning and execution of the firm’s strategic decisions e.g. new products, outsourcing arrangements, restructuring. Reinforcing the message in your strategy document will help to embed the TCF culture. The firm’s risk appetite should take account of the client considerations;
• Decision making – the firm’s decisions reflect the fair treatment of clients. Staff and client surveys as well as other feedback are invaluable but you do need to use the information and in a timely way. Listen to your clients, they will tell you if you are “getting it right”. With the move to new ownership structures, do ensure that the interests of clients are balanced against those of the shareowners;
• Controls – you need to evidence client protection primarily through management information and you need to use the MI to improve your treatment of clients. Examples are details about complaints (fee earner, supervisor, type of complaint, what was the cause), negligence claims (as above), internal audit results, client satisfaction surveys, numbers of clients, numbers of open and closed matters;
• Recruitment, training and competence – not only do you need to recruit staff with the right attitude to good client care but your training and performance management regime needs to develop and motivate staff so that they maintain and improve their knowledge and competence. Poor performance needs to be tackled and good performance rewarded;
• Reward – your pay structure should recognise quality rather than simply focusing on meeting fee targets with no regard for complaints/negligence claims or good compliance.

To change behaviour and the culture, you do need to train your staff on what you expect. They need to understand “treating clients fairly” brings real benefits, they will spend less time trying to placate the client if the client is clear what to expect and how much it will cost. The client who loses their case but was treated fairly and understood the risks because they were properly explained is more likely to tell his friends that your firm does a good job. Providing examples will make TCF more relevant;

• Return telephone calls when you promise to;
• Do not set yourself unrealistic deadlines;
• Manage expectations;
• Provide regular costs updates, set ceilings/limits and tell the client before you exceed the estimate;
• Keep the client informed at regular intervals, even if it is to say, “no news”;
• Do not use terms that the client does not understand;
• Treat them as you would like to be treated, fairly, politely and with respect.

You also need to reward employees who go the extra mile, so they see the benefit in TCF. Good communication is vital so tell staff about reductions in numbers of complaints or negligence claims as a result of your TCF measures. Positive feedback also needs to be communicated to other employees, for example, consistently excellent client survey results about a legal executive in the conveyancing department. We all want to feel valued and appreciated, so others are likely to be motivated to achieve similar results.

As already indicated, the FSA’s view is that to demonstrate TCF, you need good MI. Without MI, you will not be able to see the trends, good or bad nor can you show that you know where your problems are and so take steps to improve. By providing that MI to management, you enable the managers to see patterns and make changes for the benefit of clients.

The FSA suggested that TCF MI should be;

• Seen – management should receive, understand and review the MI;
• Challenged – to ensure the data is accurate and unexpected results explained;
• Analysed and monitored – to draw the right messages and conclusions;
• Acted on – remedial action is taken or further investigations undertaken and all actions are followed up;
• Recorded – record the actions, gather further information to check the success (or otherwise).

A review of the complaints data shows that there is an upward trend in complaints from a particular team in the PI department. On investigation, you find that the secretary who is critical to the smooth running of the team is on long term sick, telephone messages are not being passed to the fee earners resulting in clients becoming frustrated at a lack of communication. Once you understand the problem, you are half way to solving it, even though you have restricted resources, particularly if you talk to the team and ask for their ideas. They understand the problems and you may be amazed at what excellent ideas busy fee earners might have to provide a better service to clients (and make their lives easier!). The simple answer may not be “employ a temp”, you might change your procedures which result in longer term benefits for your clients.

 Each firm needs to assess the risks in their own firm, consider the types of work undertaken, the types of client and decide what MI is needed. As Samantha Barrass said recently, firms have to manage their own regulatory risk by getting to grips with the nature of the firm itself and its business practices. OFR is not a tick box approach.

Conclusion

The experience of the FSA provides valuable insight into the SRA’s aims and taking a step back to think about what outcome the client wants, will help you and your firm to show that you do treat clients fairly. It is worth thinking about your own experiences as a client and what impressed you (and what did not!). It is important that the firm learns from experience, the SRA will not be impressed if you keep making the same mistakes so you need to get to the root cause of the problem and make sure it does not happen again. If you find that there is a problem, you will need to consider whether all clients, current and former, have been treated fairly or whether you need to contact them and rectify the situation.

It will not be an overnight process, we are all struggling to get to grips with OFR and to understand what is expected. But ask your clients what they like about your firm (and what they do not like!) listen to their comments and strive to improve.  Do make sure that you give them proper costs information (and keep that information up to date), tell them what you are going to, when you are going to do it and keep your word. Monitor your progress and record the results. Use complaints to find out what is not working and deal with the complaints promptly and effectively and remember sometimes, the client just wants you to say sorry!

After you have implemented your new TCF regime, it will be a “known known” and you, your employees and most importantly your clients, will reap the benefits.

[1] (http://www.sra.org.uk/sra/news/press/attitudes-compliance-baselining-report-sra-board.page