Why recommending a lawyer on the strength of their referral fee could put an agent in jail

Ignorance is no defence.

Sadly, and it can seem quite unfair, the law is pretty harsh when it comes to doing things wrong and it can often backfire on those that least deserve it.

If you’re a negotiator working for an agent whose management insists you recommend a lawyer or a panel purely due to the size of the referral fee they receive, you could find yourself in a sticky situation that might have serious consequences.

Which, by any stretch of the imagination, is not what you signed up for when you chose to be an estate agent.

Regardless of what the Government decides to do about referral fees, there is already another very important piece of legislation in play, the Bribery Act.

Isn’t this just a bit dramatic?

As an agent, your responsibility is to hit your sales targets.

These targets will obviously include selling properties, but increasingly will also include the requirement to reach a certain number of successful recommendations for financial services and conveyancing.

You’re no doubt thinking, yes – we get that. But so?

After all, there is nothing to suggest that such activity could end up with you being banged up in Wormwood Scrubs for a few years.

Unfortunately, there is.

So what is the problem?

When you recommend a lawyer to a client, you are giving this advice in your personal capacity.

It is the same as the Anti-Money Laundering Regulations – if you tip off someone you think is hiding the proceeds of their drug operation by buying a flat in Hackney, then the responsibility is all yours.

You do not get any protection from the company you work for.

The Bribery Act 2010 was introduced to protect the public from being unfairly coerced into buying goods or services due to the person giving the advice gaining financially.

If your management have decided that you must recommend a particular lawyer or heaven forbid, a panel manager, based purely on the amount of referral fees this will generate, rather than the service they provide, this could cause a major problem for you personally.

The law is clear.

If you convince a client to use a service purely because there is a financial incentive to do so, you are in breach of the Act.

The penalties for which are between seven and ten years in prison.

And an unlimited fine.

And then it just gets worse

The problem is exacerbated by the fact that not only is recommending a service based purely on financial gain illegal, but ironically, often the service being recommended is often sub-standard.

We speak to agents who are put in this difficult position on a regular basis.

The problem is particularly acute for those suffering the indignity of having to use a panel manager.

Not only does this often mean they don’t even know who is going to be doing the work, (so how can they be confident of success) but if they draw the short straw of an under-performing panel lawyer, the service is also going to be poor.

Agents tell us they are often saying to clients, “If you use our recommended lawyers the deal will go through more efficiently” with their fingers crossed behind their back because they know full well this is not the truth.

Summary

Any good negotiator knows that having a well performing lawyer on their deals could be the difference between reaching their sales target or not.

However, for those forced to recommend someone purely because they have been told to do so, it not only puts their deals and their commission at risk, but also their freedom.

I’m not exactly sure this is a price worth paying.

Are you?

* Peter Ambrose is the owner and managing director of The Partnership specialising in the delivery of conveyancing service

  • EDITOR’s note: This story has been updated from the first version.
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36 Comments

  1. flockfollower102

    An interesting comment piece from someone who is in the conveyancing industry. Just for clarity, how does The Partnership gain its business? Is it purely from word of mouth, advertising to the public etc, or do they have relationships with recommending estate agents?

    This is purely a question, as on the website it is not clear. I note that they were in the EA Master’s Awards, so I assume there is an estate agency link somewhere?

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    1. Bertie

      They get some of our business by being great at what they do – proactive, communicative and knowledgable.
      I won’t take referral fees from anyone and will always refer customers to who I think are the best solicitors for the job  

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    2. Peter Ambrose (The Partnership)

      Good morning

      We receive 100% of our work on a recommendation basis purely on merit.

      50% of our work comes from estate agents and mortgage brokers and the other half comes from existing client recommendations.

      We were delighted to be rated Outstanding in the EA Masters Awards which is based purely on feedback from agents – we didn’t even know we were nominated !

      Peter

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      1. AgencyInsider

        Do you make any referal payments to those agents or brokers as a result of their introductions to your company?

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        1. Peter Ambrose (The Partnership)

          We understand that a strong referral will help us win more business.
          We do pay referral fees but do not pass these onto the client and we declare these to our clients. We charge the same fees irrespective of how a client is referred to us, so just absorb these as a cost of sale.
           

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          1. flockfollower102

            Hi Peter, thanks for confirming that you also pay referall fees. Unfortunately, I do not think your article really makes sense now. We do refer to a panel and we do receive commission, but the panel is working on a no sale no fee like us and we get really good service from the two solicitor companies that we use.

            The biggest problem in our industry is not referal fees, but a conveyancing system that is still trapped in the 19th century. I would have a lot of respect for solicitors and conveyancers who came on here and made sensible, thought out suggestions for how the system could be improved. The current one is no longer fit for purpose, especially when you take a look at the mis selling of lease hold properties story. What was the legal profession’s responsibility in that?

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  2. Emmersons46

    As COLP for my firm I think some clarity is required.

    If the referral fees are accepted without any consideration of the service provided (the inference being that any recommendation is based on the fact that it is good for the client) or they are not disclosed or they are excessive/disproportionate then the Bribery Act will kick in.

    As a criminal law advocate I promise you that no one with any sense wishes to be taken through the criminal justice process. So better to avoid it.

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  3. J1

    Jail them

    Jail them all ……..

    Ban the Ref………..

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  4. NickM

    “So said many of the foot-soldiers of the Third Reich at the Nuremburg Trials after the Second World War when accused of participating in war crimes.”

    Really?

    An analogy between war crimes and estate agents making a referral, oh dear!

     

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  5. S.kaye

    This is just the kind of sloppy journalism that makes me so cross. Making an analogy between N@zi soldiers and some estate agents, accepting referral fees, is offensive to me personally and my family and my estate agent contacts (who are part of my extended family). I do not subscribe to these ridiculous sentiments and, as a lawyer, I feel such comments brings our profession into disrepute (especially when the author of the article admits he pays referral fees). Any estate agents reading this, who are concerned, please feel free to email me – Stuart Kaye at Adams Kaye and I will explain the regulations to you. You are not going to jail.

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    1. Peter Ambrose (The Partnership)

      Hi Stuart!
      You might want to re-read the article again…
      It’s not the act of paying fees that is illegal but promoting a service PURELY because of them falls foul of the Act.
      Also – there is NO comparison drawn between your extended family and war criminals – just illegal activity!
      Peter

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      1. S.kaye

        Re-read your article (which I had to read three times, to believe what I was reading). I am extending professional courtesy to you – remove your post completely – it is making you look ridiculous and will do you no favours! 

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      2. ARC

        Sorry Peter but I think you have got this one wrong the article was in complete bad taste and I think you will have offended a large proportion of the readership, not intentionally though I am sure.
         
        Especially given you admit to paying fess yourself!

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        1. Peter Ambrose (The Partnership)

          I really hope it doesn’t offend people that is absolutely not my intention at all – obviously I apologise for anyone who is offended.
          The point was purely to highlight the “ignorance is no defence” argument – maybe too emphatic an example. 
          It is not an argument against referral fees – I have written time and again that we do not have an issue with these. The issue is the reason for referring and whether it is in the client’s interests.
           

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        2. S.kaye

          Bad taste 100%.  I have many German friends, who would be horrified to read this, in the year 2020.  My Jewish family and friends would be disgusted.  Bad taste (at best). It is inapproporiate and certainly not what the estate agent community wants to read either. We should be better than this.  The whole article is poor and I hope the editor of Property Industry Eye is reviewing this shortly.  The offensive paragraph should be deleted, if nothing else. I have tried to be nice in my objection but will escalate this to The Council for Licensed Conveyancers, if the article is not modified by COB today. Not in my name! We have in this country freedom of speech (when used intelligently). 

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          1. AgencyInsider

            I have tried really really hard to be offended by the wording and I am not.

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            1. ARC

              Nor am I but I can see how people would be and hence I think it was a mistake.

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  6. Alan Murray

    If it is so straightforward, and this is clearly something the author feels strongly about as it is a common thread from him, then why not test the water by taking out a private prosecution against somebody?

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    1. Peter Ambrose (The Partnership)

      Hi Alan
      Yes – I do feel very strongly about this issue because the house buying public is suffering from huge delays and inefficiencies in the system, much of which is caused by the erosion of margins to law firms resulting in under investment and overloading of staff.
      I would LOVE to see a private prosecution!  Just need to identify a member of the public prepared to go to court and we’re away at the races!

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  7. ARC

    Now I have dealt with more conveyancers than I care to share here. One thing I am certain of though is that just about any estate agency business out there will stop referring to a conveyancer who is not providing the service that they and their clients require, regardless of what fee they may be receiving. The reputational and cashflow damage that a bad conveyancer can do for agent is not worth a couple of hundred quid for a referral.

    What do people think?

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    1. S.kaye

      I agree with you 100%.  I will only pay a referral fee to an estate agent IF they think we are good, not for what £ they get.  That is my starting point.  The referral fee is purely the icing on the cake, not the cake.  We do not approach new estate agents, offering ££££ as a starting point.  That is purely secondary, to the primary.  Service first, cake second. 

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    2. Alan Murray

      I would suggest there is considerable evidence out there to indicate the contrary. Otherwise why would the factory outfits still be in business? Plenty of Agents are still recommending them, and since there is no way that is due to excellent service there must be another reason?

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      1. ARC

        Very valid Alan and I hope that the reason is that in the main the ‘factories’ are fed by the large corporates ie. Purplebricks and My Home Move and therefore are not representative of the vast majority of our industry who do value the relationship with client and conveyancer.

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    3. Nemo Conveyancer

      On a one to one basis I agree completely; the relationship should be mutually beneficial. The Agent gets a financial bonus and their file progressed and the conveyancer gets a steady source of work. We pay the odd referral fee. These files are used to ensure steady workloads whilst we explore more profitable direct work. It makes sense for both sides and I don’t see anything untoward in it.

      The issue is that, for some, we aren’t talking about a couple of hundred pounds. We are talking huge sums of money. Sufficient sums to create an industry out of panel management. Sadly, service issues play second fiddle to revenue.

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  8. Nemo Conveyancer

    Article is heavy handed, but the underlying point is fair. Refer on service, not on financial gains (although the undertones of ‘or else’ are a bit counter-productive).

    However, I’m sure that all individual agents that have the power to make that choice already plump for the better service, for the reasons stated above.

    I do think that Conveyancers need to stop fixating on referral fees as the cause of all the issues in the Conveyancing industry. They are a factor, but there are others. Many seem to believe (not necessarily the Author of this article) that a referral fee ban will bring about a new dawn. Even if it did, it would take a long time to pay tangible benefits in speed and quality. There simply isn’t the same knowledge base as there once was.

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  9. Rob Hailstone

    20 years ago, I received a call from a lady who said you acted for my mum when she bought, she is unwell now and wants you to act again but the agent says you can’t. She must use their conveyancing recommendation. The agent worked for a firm that threatened no bonus and sacking for non-recommendation.
    I phoned the agent, who was intransigent, until I said my client has recently had a major stroke, “don’t you think she has suffered enough”. She laughed, said yes. I acted.
    It is these strong-arm tactics that have to go.

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  10. Isobel Brookfield

    This article is sadly potty. Whilst it is dramatic and eye-catching (no pun intended) to declaim in this way, the truth is that there would be a myriad of defences available, not least that someone responsible for the business as a whole, with a broader perspective of the issue than the worker on the ground, had formed a defensible business decision to make referrals in a certain manner. If anyone does not think that referral fees have had the general effect of raising standards then I am afraid they are miserably mistaken. We might decry the secrecy surrounding how payments between lawyer and referral agent are split – and there may be much more that could be done to illuminate the position for the benefit of consumers – but the fact remains that if the conveyancers do not perform well, they do not convert the pipeline for the agent and the agent will team up with someone else who will. Overall that is in customers’ interests. Likewise, if the conveyancers generate a lot of complaints and dissatisfaction, the agent’s business will be adversely affected by having a relationship with them, and they will move away to another, better, conveyancer. That is in the interests of consumers as a whole.

    We may look back dewy-eyed on the days before referral fees came into play (and I remember them well, I was a practising solicitor in the conveyancing field for many years before such shameful things were even spoken of) – but we should not be mealy-mouthed about the benefits. There is a ton of substandard lawyering going on in the conveyancing sector, and some of it definitely within the ‘referred’ zone, but it works itself out a lot faster due to commercial realities than it ever used to, and it does not constitute bribery or corruption – just an inconvenient truth to those who would like to turn the clock back.

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  11. Emmersons46

    Precisely

    I think estate agents fret more over failed transactions than Solicitors because most Solicitors will charge a fee even if the transaction fails.

    The  concern of some over who undertakes the legal work is unnecessary.

    Managing expectations and keeping people on board and informed about the process as it actually is keeps tempers cool, thinking clear and failed transactions lower.

    The purchase of property should be a matter of choice, the exercise of free will not a railroaded exercise.

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  12. baldshortbloke

    What a silly and undedicated analogy. Your example implies that agents akin to ****’s and that the owners off those agencies are akin to the architects of the final solution, World War2 and the Third Reich.  
    Yet you say later on that you do participate in the in referral fee’s but you still charge the client the same.  You don’t need to be a genius to work out that you just pro rata this across all your cases as the cost of acquisition.  
    So whilst you stand preaching from the parapet you offer the people you have just likened to ****’s another solution that’s just a little different from the previous solution.

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  13. #ImpressiveConveyancing

    Your point is very clear Peter. You aren’t talking about the payment of referral fees itself, but the motivation of the recipient.
    Rob too, your example is far too common. And the public would be shocked which estate agent chain we hear it most frequently about.
    We hear both your scenarios far too frequently too, estate agents telling us they are obliged to follow the three line whip and apologizing to us, yet also saying they will refer anything over the quota to us, or their own conveyancing.
    Thankfully, the Government will now have the names of the usual culprits – conveyancers and estate agents – in their crosshairs due to their recent request for comments on improving the home moving process.
    If only the following statement was universally understood: “The reputational and cashflow damage that a bad conveyancer can do for agent is not worth a couple of hundred quid for a referral”. It’s why we cannot refer work to certain estate agents, we will only align with quality. About 4 years ago, we even fired a national house builder who recommended buyers to us as we felt they were not respecting those they referred.
    Of course referral fees lead to shoddy conveyancing standards. ‘We don’t care about complaints as we don’t need repeat business, we are buying our next customer, they just flood in’ That’s why ‘free legals’ is such a despised word in terms of the quality you will receive, and why volume outfits are always in the top 5 list of the worst performing conveyancers if you ask most conveyancers and estate agents.  
    There are shoddy conveyancers, and shoddy estate agents. Instead, just be motivated by offering quality – simple point.

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  14. Peter Ambrose (The Partnership)

    I wholeheartedly apologise for my misjudgement and the offence this article has caused.

    I will not make the same mistake again.

    Peter Ambrose

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    1. Rosalind Renshaw

      This article has now been amended, with apologies for our error of judgement in the first version. Rosalind Renshaw, Editor, Property Industry Eye

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  15. Fairfax87

    Some excellent responses have followed from Peter’s potty article. I agree that Solicitors like Peter and Tim Higham need to stop fixating on referral fees as the cause of all evil in the house selling process and look themselves and/or their fellow Solicitors in the mirror..  why send out Terms of Business by post and do nothing until they return? Why not enlist the help of the agent to chase missing items?  Why not take payments on account by phone on day one by credit card? Why not order searches immediately rather than awaiting a plan, when the vast majority of local authority records are based on the address?  Why refuse to give updates to the agent, stating GDPR as the reason?  Why maintain a bank of fog over what the lawyer is up to (or not, in too many cases), ant not engage in sharing milestone progress online?  The list goes on…

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  16. Emmersons46

    why send out terms of business by post and do nothing until they return? To be certain of identity of client and to be sure that the retainer is entered into and to comply with Money Laundering Regulations (which also apply to estate agents).

    how precisely would an agent help in chasing missing items?

    payments on account by credit card? to avoid risk of fraud. internet banking is much safer.

    when the client pays the money then searches can be obtained.

    because GDPR is a legitimate reason. why break the law just to keep an estate agent happy? why don’t agents obtain the client’s signed, written authority?

    clients are kept informed. and the estate agent is not the conveyancer’s client.

    If its so easy, why don’t more estate agents set up as conveyancers? Anyone can own a conveyancing firm.  I’ve never once thought it appropriate to tell an estate agent how to run their business. Its always interesting that some estate agents believe conveyancing is so very straightforward.

    Perhaps the real issue is that some estate agents believe they have all the answers and that haste will resolve all their issues. Maybe the issue is that estate agents have an unrealistic, ill informed view of conveyancing. if any in the Newcastle upon Tyne area would like to experience working in a conveyancing department then do get in touch.

    Meantime, control your client’s expectations and keep it real. Cool heads, cool tempers, more light and less heat.

     

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  17. Rob Hailstone

    Pretty sure Peter did not intend to offend, and lesson learned.

    He is a Marmite character. I like Marmite.

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  18. JeanB123

    If the author is from the Partnership I find this article a little hypocritical as it is their firm that have come out of area and taken work from local Solicitors absolutely because they pay referral fees when local firms won’t.  It has nothing to do with how good the service is and we know that as agents have told us.  Paying £150 per matter local firms can’t or choose not to compete with on moral grounds.  If you are the best at what you do why do you need to pay referral fees.  Stay in your own town and do a good job!

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