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Thursday, 3 January 2013

Goodbye to Referral Fees - hello to....??

From April 2013 it will no longer be lawful for Solicitors’ firms to pay referral fees for Personal Injury work. Referral Fees have only been acceptable since 2004. But since that time an entire industry has grown. We have seen the arrival and growth of major Claims Management Companies (CMCs) who have used their marketing strength to find cases which they have sold on to law firms. In turn, some law firms have become major players in the Personal Injury field by buying in massive volumes of work.

The full impact of the ban is yet to be assessed. It seems clear that many of the biggest CMCs will set up joint business ventures with firms as Alternative Business Structures (ABSs). But what is clear is that any business model based on buying in as much work as a firm can afford is finished.

So how will Personal Injury solicitors find work after April?

I suspect that many will simply abandon ship and look for other ways of making money. We will see the development of mergers and networks as firms look to consolidate and use collective marketing.

The internet is also going to play a more significant role as forward thinking firms plan their own marketing. Who doesn’t use Google to find a service? So firms will be looking to do all that they can to strengthen their position in the rankings. Being on the first page of Google can be worth a fortune and the role of SEO is going to become extremely important. I bet that most lawyers did not know what that acronym meant until a couple of years ago.

Social Media is also going to grow in importance. I have mentioned the power of Facebook, Twitter and LinkedIn before –

As of today LinkedIn tells me that my network of contacts has a potential reach of 8,690,641 – about the population of Austria. The potential is almost limitless. It is hard work but likely to be the way forwards.

We might also see a return to the old days when firms are instructed because they offer the best quality work. This may seem obvious but lawyers will be competing with some major brands. The Co-Op, SAGA and Eddie Stobart to name just a few –

Those well known names are bound to draw attention. But ultimately clients want the best advice. This will focus the minds of all lawyers and will hopefully result in better quality across the board.


  1. Referral fees to non-lawyers can lead to all manner of abuses and commoditization (is that a word?) of injury claims. As with non-lawyer ownership of law firms, it is the wrong direction to go. In Georgia Rule 1.5(e) on Fees, similar to the rule in many US states, provides: "A division of a fee between lawyers who are not in the same firm may be made only if: (1) the division is in proportion to the services performed by each lawyer or, by written agreement with the client, each lawyer assumes joint responsibility for the representation; (2) the client is advised of the share that each lawyer is to receive and does not object to the participation of all the lawyers involved; and (3) the total fee is reasonable." This provides both ethical cover and economic incentive for lawyers to steer work to other lawyers who are better equipped to serve particular client needs while retaining both a fee interest and a professional responsibility for the client. Like anything else, there is potential for abuse when an advertising law firm just brokers blocks of cases and keeps too large a percentage of the total fee. However, it is better to work on resolving those problems than to throw out the positive aspects of referral fees.

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