The Referral Fee Ban: What Does it Mean for your Business?

When part two of the Legal Aid, Sentencing and Punishment of Offenders Act goes into effect next month, it will make it a regulatory offence to either pay or to receive referral fees in personal injury cases.

As part of the recommendations outlined in Lord Justice Jackson’s Review of Civil Litigation Costs there will be a fundamental reform of ‘no win no fee’ conditional fee agreements and a ban on the payment and receipt of referral fees in personal injury cases.

The ban will affect all firms involved: solicitors, insurance companies and claim management companies. Violations of the legislation once it goes into effect will be actionable by the relevant regulatory body: for solicitors, the SRA.

In order to help legal firms understand what is and what is not a prohibited referral, the SRA produced the accompanying flow chart.

While it is all very well that the SRA help to make sure that the line is clearly drawn in terms of what is and what isn’t illegal, what they do not adequately do is address how the new legislation will affect legal firms.

In a consultation on the ban on referral fees, The SRA did note that

“Some respondents voiced concerns over the survival of smaller practices who have up until now have relied on referrals from, for example, claims management companies, as they themselves lack resource “…to promote their businesses individually in a highly competitive marketplace…”.

However they do not present any solution to this situation. Their response is simply that

“We appreciate that the ban will inevitably bring with it issues that pose a risk to the regulatory objectives. We have in particular indentified the following issues:

  • financial stability;
  • integrity/independence; and
  • undesirable business models

We will look to engage with firms/individuals to ensure that these, and any other risks we identify, are being mitigated.”

So, how do you ensure that your firm survives this and other changes brought about through recent government reforms?

The answer is quite simply to out-create it; to promote and market your services to a degree whereby any income you may have generated through referral fees is generated through other traffic. You need an effective on-line marketing campaign.