Legal Recruitment from Ten-Percent Legal

Thursday, May 15, 2008

Referral fees. What’s the point?

In the Law Society Gazette last week was an article on referral fees with a leading insurer questioning whether solicitors could actually afford to pay them.

My experience of referral fees relates to personal injury, company commercial, conveyancing and medical negligence matters. It also relates to experience in the recruitment industry, where one agency will pay another one a referral fee for cross-referring into different fields.

I have to say that I am yet to come across anyone apart from claims management companies who appear to have made any money out of paying referral fees. Often the fees are fairly hefty, and eat into the profit margins quite substantially. I seem to recall a firm telling me they had signed up to an internet conveyancing referral site that was charging in the region of about £200 to £300 for each of its referrals. If you consider that an average conveyance will only cost in the region of about £500 to £700, it does not leave much left for a solicitors firm to make any profit on.

In the claims management industry, we watch every year as a claims management company opens and another one closes down. There seems to be a fairly consistent pattern of firms opening and closing and struggling to find any real consistency because of the fact that the profit margins are so low. The heady days of people stood in streets asking passers by if they have had an accident so that the company could refer the matter on to a firm of solicitors appears to have disappeared, and in fact the whole industry was a bit of a myth anyway because when figures were looked at there was no increase in the overall number of claims across the UK even when solicitors were suddenly marketing their wares.

I recently had a car crash and was injured in the crash and required the services of a solicitor.

I recalled a solicitors firm advertising in the local paper saying that they could give 110 percent of your claim back, so rather than just getting 100 percent of your claim, they actually got an extra ten percent on top.

However, the fact that you could get 110 percent back on a claim hadn’t registered with me the name of the solicitors firm, and I simply resorted to knowing a good firm in the area myself and phoning them to deal with the claim.

The moral of this tale is that the advertising and the claims management that has been going on over the years probably has not made that much difference to the actual provider that most people would think of going to. A lot of solicitors work is by recommendation, in a similar way to recruitment consultants (we pick up a lot of our good candidates from referrals from other good candidates and this is how we often make our placements).

So when it comes to referral fees, we are not sure whether the quality of the referrals sufficiently merits spending such large amounts of money on receiving them in the first place.

It can be likened a little bit to the jobs board industry that has sprung up across the world, and the rather expensive costs of sourcing candidates via them. The obvious exception being Chancery Lane at www.chancerylane.co.uk, which charges very low fees and covers a whole wide range of fields of law and concentrates on solicitors.

Jobs boards charge thousands of pounds to agencies to advertise on them, yet the quality of the candidates you usually receive is fairly poor because the majority of the people registering with the job sites register with all of them and with all the agencies, and this means that when you get a decent CV it is likely to have been with at least three to four other agencies at the same time.

In summary I suspect that the vast majority of referral fee arrangements do not actually produce a large amount of work for the solicitors firms involved, or if it does, the profit margins are so slight that the work is second rate and the solicitors firms try to avoid doing any work in the first place. Each time a new marketing idea come along, solicitors seem to take the recommendations of business consultants and jump on board and see where that particular marketing exercise is going, without auditing or weighing the effects or the results that they may or may not get.

Jonathan Fagan is Managing Director and business consultant with www.ten-percent.co.uk, specialist legal recruitment consultancy in the UK. He can be contacted for comment or advice at cv@ten-percent.co.uk

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