Opinion: Referral fees and what the new crackdown could mean for agents

“Here we go again – he’s rattling on about referral fees.”

We talk and meet with over 200 agents every month and discuss the most effective ways we should work together, which we like to think gives us a good insight into many of the issues agents face today.

That’s why the recent announcements about referral fees and a merger between the owner of a major panel manager and the country’s largest conveyancers, were of particular interest to us.

Just a reminder: the Government has essentially told agents that they’ve got a year to start telling their customers about the size of referral fees they receive, or they’ll be back with boots and big dogs.

Then it was announced that Simplify, the owner of MoveWithUs, has merged with Premier Property Lawyers, which got an unsurprisingly negative response from agents on this site.

We do know that for some agents, when it comes to sending Christmas cards, PPL are not exactly high on their lists.

Following the rule of unexpected consequences (yes – we’re looking at YOU David Cameron with your decision to fight UKIP by holding a referendum on Europe) the outcome of these two events may not be what people might have first thought.

We believe that they may prompt a change for the better.

What could this mean for agents?

To clear up any confusion, we don’t think that referral fees are, in principle, a problem.

There are some readers who think that because we highlight abuses of their use that we disapprove of them. We do not.

Indeed, any lawyer that refuses to pay them out of principle needs to wake up and smell the coffee. We believe that paying for leads is justified where it results in a significant volume of qualified and convertible business.

However, the new requirements for agents to disclose the size of the fees they receive could be problematic, especially for those where customers see that the lawyer receives the least amount of money out of the transaction.

Consumers are better informed than ever, especially around competitive pricing, and this will no doubt raise awkward questions for some agents.

This may be even more challenging for those who have no choice over which lawyers they can refer to.

We know this from the feedback we get from agents who must refer work to a panel manager, which is very rarely positive.

Indeed, going forward, for those working with MoveWithUs they will find their choice of lawyer will be more restricted than before, as obviously more work will go to PPL.

What does this mean for lawyers?

There is a gap in understanding of referral fees between the referrer and the person receiving the work.

Whilst the government report has many lawyers very excited at the suggestion that this is beginning of the end of referral fees, in reality this is unlikely to be the case.

There are two schools of thought from lawyers.

Those that boast that they never pay referral fees, because “they are so good”, and those who bleat that “we can’t win work unless we pay referral fees”. Typically the latter tend to lack the necessary business development skills and become easy meat for panel managers.

If the changes mean that agents become concerned about reputational damage caused by the disclosure of their relationship with intermediaries, they may have to change their approach.

In addition, with such companies potentially being priced out of the market, lawyers must change to make them more attractive as business partners to agents.

Firstly, they need to invest in software that provides transparency for case tracking – agents need to know what’s going on and lawyers, like everyone, are accountable and need to be more open about issues.

Secondly, they need to get over their prejudices and engage with agents about referral fee arrangements.

For those that are being spoon-fed work from MoveWithUs, their merger with PPL might actually prod them into action to try and win work themselves.

The challenge will be that anyone charging low fees for conveyancing will need to grow a spine, believe in their own quality and increase their fees to enable them to pay referral fees to agents.

Sadly, this could be very tricky for some.

Change is coming – let’s find solutions

The feedback we have received from business owners since the government announcement is of understandable concern about a further challenge to their business.

However, if the outcome is the demise of panel managers without sacrificing an important additional revenue stream, it may be a big win for agents who will be able to afford to recommend decent lawyers of their choice who will help save more deals from fall throughs, and who will, in turn receive appropriate fees for doing the job properly.

Peter Ambrose is founder of independent conveyancing business The Partnership

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9 Comments

  1. Rob Hailstone

    “There are two schools of thought from lawyers.
    Those that boast that they never pay referral fees, because “they are so good”, and those who bleat that “we can’t win work unless we pay referral fees”.
    Well, I suppose I was in the former “boasting” category then because I didn’t pay them but I was available pretty much 24/7 and got the job done.

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  2. ArthurHouse02

    People dont expect you or any other solicitor to be available 24/7 they just expect their sale/purchase to be progressed in a timely fashion. This 24/7 notion is complete balls, most hard working people work roughly 9-5/6, most vendors or purchaser have no intention of contacting their solicitor or estate agent at 3am, they just expect a response during normal working hours.

    The problem with referral fees is that it has allowed the likes of PPL etc to grow in demand from estate agents like PB, Fox & Sons etc and they are complete hash. But a fee ban wont stop these companies getting business as there will still be ways of rewarding a company for providing them with business.

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    1. Rob Hailstone

      I didn’t provide a 24/7 service because it was expected, I did it because I wanted every single one of my clients to by the property they wanted to buy in a timely fashion. And whilst I would have answered my phone at 3.00 am, of course no one phoned me then. Most calls were between 7.00 am and 8.00 pm on a working day and during the day on a Saturday. There were a few exceptions and they made some transactions particularly exciting and challenging.

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  3. scruffy

    Acting in the client’s best interest, transparency, and avoiding conflicts of interest. Are these elements to be regarded as alien concepts to professional estate agents today, in particular the corporates?

    In my view, recognising I’m probably in a minority, referral fees for legal and financial services will undermine each of these unless properly policed and transparent for clients to make an informed choice. They should not be relied upon to keep agencies afloat, or to mitigate ridiculous RM subs.

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    1. fluter

      Surely if everyone from the agent to the lawyer was really acting in their clients best interests, if no referral fee was payable to the agent then the lawyer could charge less to the client? What option do you think the client would choose, referral fee and pay more or no referral fee and pay less for exactly the same job? If proper, full-service agents improved their service, charged a decent, appropriate fee for delivering exceptional service there would be no reason to look for referral fees to prop up their business.

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  4. KatieHatten85

    The problem is that agents are seduced by the referral fee, but it is at the expense of the Conveyancers/Solicitors ability to make any money, which then means they can’t afford to pay enough people or employ the right people to do their job properly – hence the terrible service.  I take the PB example given today – the conveyancers charge the client £599 – £382 is paid to PB as a referral – leaving £217 to pay for the conveyancers!!!??? As an agent we would love this kind of referral income, but I would rather refer to good Solicitors as ultimately I’d rather get paid my fee!
    And it is this kind of thing that will get all referral fees banned!
     

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  5. Alan Murray

    Technology is the answer whatever the question. Technology I say!!

     

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    1. Peter Ambrose (The Partnership)

      Short, sweet and spot on Alan..

      Small problem – it doesn’t exist today … But it’s coming …

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  6. Commenttrawler

    What people need to understand that many panel solicitors don’t have a sales force.

    agents are the sales force

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