Referral Fee Ban – guidance at last

The SRA published their Consultation Paper on the implementation of the Referral Fee ban this week. The formal consultation is open until 18th December, after which the response will be published. Code changes will need to be approved by the SRA board and any changes to the regulatory framework approved by the LSB – with the final version published in March 2013 just weeks before the ban comes into effect. This leaves little time for solicitors and CMC’s alike to plan new business models with any certainty.

Having said that, the Consultation Paper is helpful in many respects as it does provide guidance on scenarios in which it believes a referral may arise which would be prohibited. Although not definitive, the guidance (in the form of a flow chart) is reasonably straight forward to follow. The paper also sets out a number of scenarios where the SRA believes the Referral Fee ban would impact certain business structures.

For example, where a website offers to find a firm of solicitors for members of the public, where the client is required to input their postcode and the solicitor then receives an e mail providing contact details. As long as the firm pays a fixed fee to be part of this type of scheme and that isn’t related to the number of claims, then the SRA believes that this would not constitute a referral. That’s good news for schemes like www.personalinjurylawyers.co.uk.

Alternatively, where an insurance company has an arrangement with a firm for the referral of clients, where the insurance company provides the client details and the firm pays for each client referred, then that would be prohibited under the ban.

The question of joint marketing schemes like IL4U is still not answered however, but reading between the lines that would seem to be OK if the payment is a) not linked to the number of enquiries/referrals and b) the payment or contribution towards the services being provided i.e. the advertising cost, perhaps vetting, call centre etc is not in excess of the normal rate and c) payment is conditional on referrals.

Broadly speaking my interpretation is that the key point is that you won’t be able to make payments that are linked to the number of referrals. That may well make firms nervous.

ABS’s are still a mechanism to potentially avoid the ban, where a CMC and solicitor work together, but the SRA does say that it will look closely at those kinds of applications to make sure they are not in some kind of group structure where payments are still made to parties. Those models do need to be truly integrated, with both parties sharing in profit distribution.

All in all, I think the Paper is a big step in the right direction in terms of providing guidance. Ultimately the outcome required by the ban is to end referral payments, so any models which seek to hide this direct link between the number of referrals and the amount paid for a service are likely to be subject to close scrutiny.

My advice would be, do your own marketing. Join with others to do the marketing and pay someone a commercial rate to that. Enter into a properly formed ABS, or employ a CMC to do marketing on your behalf under your banner and take responsibility for their performance.

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