Agent referral fees – It’s not all doom an gloom

We talk and meet with over 200 agents every month and discuss the most effective ways we should work together, which we like to think gives us a good insight into many of the issues they face today.  That’s why the recent announcements about referral fees and a merger between the owner of a major panel manager and the country’s largest conveyancers, were of particular interest to us.

Just a reminder – the government has told agents that they’ve got a year to start telling their customers about the size of referral fees they receive, or they’ll be back with boots and big dogs. We believe that they may prompt a change for the better.

What could this mean for agents?

To clear up any confusion, we don’t think that referral fees are, in principle, a problem.  There are some, who think that because we highlight abuses of their use that we disapprove of them.  We do not.  Indeed, any lawyer that refuses to pay them out of principle needs to wake up and smell the coffee.  We believe that paying for leads is justified where it results in a significant volume of qualified and convertible business.

However, the new requirements for agents to disclose the size of the fees they receive could be problematic, especially for those where customers see that the lawyer receives the least amount of money out of the transaction.  Consumers are better informed than ever, especially around competitive pricing, and this will no doubt raise awkward questions for some agents.

What does this mean for lawyers

There is a gap in understanding of referral fees between the referrer and the person receiving the work.  Whilst the government report has many lawyers very excited at the suggestion that this is beginning of the end of referral fees – in reality this is unlikely to be the case.

There are two schools of thought from lawyers.  Those that boast that they never pay referral fees, because “they are so good”, and those who bleat that “we can’t win work unless we pay referral fees”.  Typically the latter tend to lack the necessary business development skills and become easy meat for panel managers. If the changes mean that agents become concerned about reputational damage caused by the disclosure of their relationship with intermediaries, they may have to change their approach.  In addition, with such companies potentially being priced out of the market, lawyers must change to make them more attractive as business partners to agents.

Firstly, they need to invest in software that provides transparency for case tracking – agents needs to know what’s going on and lawyers, like everyone, are accountable and need to be more open about issues. Secondly, they need to get over their prejudices and engage with agents about referral fee arrangements. The challenge will be that anyone charging low fees for conveyancing will need to grow a spine, believe in their own quality and increase their fees to enable them to pay referral fees to agents.

Sadly, this could be very tricky for some.

Change is coming – let’s find solutions

The feedback we have received from business owners since the government announcement is of understandable concern about a further challenge to their business. However, if the outcome is the demise of panel managers without sacrificing an important additional revenue stream, it may be a big win for agents who will be able to afford to recommend decent lawyers of their choice who will help save more deals from fallthroughs, and who will, in turn receive appropriate fees for doing the job properly.