The Council for Licensed Conveyancers (CLC) has published its interim report into the use of referral fees and put forward a series of recommendations to strengthen transparency and consumer protection.
The review found that referral arrangements can play a legitimate role in conveyancing and help consumers to access services conveniently, provided they operate clearly, consistently and in the interests of consumers.
But the CLC warned of a potential “regulatory blind spot” created by inconsistencies in record-keeping and the lack of information available to consumers before they instruct a solicitor, preventing them from making informed decisions.
In a webinar held to explain the findings of the report, the CLC’s director of strategy and external relations Stephen Ward said it sets out early initial recommendations to explore with the conveyancing community and called for further evidence to explore the role referral fees play in the sector.
“Referral fees are a thorny subject that can arouse passion on both sides of the debate,” Ward acknowledged. “It’s important to say what we’re looking to do is flush out evidence and get clear views on what’s happening so we can make an evidence-based response.”
The CLC announced it would undertake a thematic review of referral fees, its first in 13 years, in the wake of last year’s BBC Panorama documentary, which raised concerns about conditional selling by estate agents.
The review looked at 12 practices of varying sizes and conducted interviews with 15 lawyers and carried out an in-depth analysis of data gathered during inspections and of each practice’s compulsory annual regulatory return, with insight from the CLC’s professional and consumer reference groups.
It found all 12 practices had referral arrangements in place, with five unable to produce written agreements and disclosures to clients not always complete or available for review. Three of the practices relied on referrals for up to 85% of their work, with payments found to be between £50 and £600.
Sarah Manuel, policy manager at the CLC, said the review revealed some practices saw many benefits of the arrangements, including the generation of client pipelines. But she acknowledged the CLC could do more to understand the public perception of consumer perception.
“We need much more evidence to be able to make a definitive conclusion and that’s one of the reasons we’ve introduced an interim report at this stage,” she explained.
Although the review found a lack of transparency around referral fee arrangements in some of the firms it assessed, it was unable to determine whether higher referral fees impacted conveyancing fees or service levels.
The report notes: “No one spoken with admitted that high referral fees were passed onto the client through higher conveyancer fees, which if this is the case, raises questions about whether fees are being absorbed by some conveyancing practices as a ‘loss leader’ potentially undermining the value of the conveyancing process.”
During the CLC’s webinar, Ward acknowledged some firms may view referral fees as the cost of client acquisition as an alternative to marketing and stressed an outright ban is not currently under consideration.
“We do recognise in the report that there are different business models in operation, so we need to consider the risk profiles of different firms as we go through the regulatory approach,” he said.
The CLC’s review identified two complaints that referenced referral fees within the last five years, one of which did not form the body of the complaint, and another which didn’t represent a breach of existing guidance.
The Legal Ombudsman was also asked for records of any complaints related to referral fees but no data exists, which the CLC said suggests a lack of evidence that harm is being done to clients.
The review’s interim recommendations include earlier and clearer disclosure of referral arrangements so consumers can make informed choices at the outset, strengthening expectations around written agreements and record keeping, working with the property sector and consumer bodies to improve awareness of disclosure responsibilities, and targeted monitoring to assess how effectively any changes are operating in practice.
However, recommendations will be refined or expanded in light of new evidence, Ward said during the webinar.
Commenting on the publication of the report, he said: “Given the strength of feeling we have encountered in our research, and the diverse opinions held by stakeholders, we feel it is important to take a sounding on our interim findings and recommendations, invite any evidence not already shared with us, and provide further opportunity for discussion with the sector having had the benefit of seeing the interim report.”
