Four major private client risks — pitfalls and practical tips

Embedding best practice in routine processes will help minimise exposure to risk. Protect your clients and your firm with expert advice from Lockton.

From ageing populations and ever more complex tax rules to volatile digital assets and regulatory demands, private client practitioners are navigating a risk landscape that’s shifting faster than ever.

Routine processes and procedures can sometimes slip when individuals and teams are under pressure, but in fact the same routine processes are the bedrock of risk management.

With this in mind, we have selected some of the more common risk management pitfalls for private client practitioners. For each one we consider the risk and how to manage it.

Timescales

The risk: Allegations of delay do sometimes feature in complaints and claims against private client practitioners. An actual delay in dealing with an estate can have significant financial repercussions: perhaps a delay in preparing a new will means the client dies before it is executed, or inheritance tax (IHT) penalties and interest are due because the correct forms were not submitted on time. A client might lose capacity before executing their will, or assets might drop in value before funds can be distributed to beneficiaries. 

However, sometimes a complaint concerning timescales can be due to a client’s perception that there has been delay. The executor who thinks the estate is ‘straightforward’ and can’t understand why it is taking ‘so long’ to obtain confirmation, to use a common example.

How to manage it: Diary management is key here. All specific deadlines should be diarised in a central case management system. They should also be diarised in more than one fee-earner’s calendar, to avoid missing the deadline due to fee-earner absence. Make sure to build in calendar reminders leading up to any deadlines, not just on the day itself.

To ensure that files are progressing, it is wise to incorporate regular file reviews into your procedures. Lockton has a helpful file review checklist that you can tailor to your practice: Managing Risk – Conducting Effective File Reviews.

Where a third party is causing the delay, include calendar reminders to follow up with them regularly. Crucially, make sure these chasers are documented on your file so that you can evidence all that you have done in the event of a complaint from the client.

Where the issue is a client’s perception of delay, the problem could be a lack of effective communication. An executor who has never held the role previously may have expectations of timescales that do not match reality. It will therefore help hugely if you take time at an early stage to explain the realistic timescales and the external, uncontrollable factors liable to affect them.

How, then, do you communicate this to clients?

Your letter of engagement is a very good place to start. It is always best practice to tailor the letter of engagement to the transaction as much as possible, and to avoid simply running off a style letter with little detail included. An explanation of potential timescales is something that you could include in your letter of engagement. Where timescales are known, explain these. Where they are unknown or can typically be subject to delays, explain this too. This will all help to manage the client’s expectations. For more on letters of engagement, including sample wording, see Lockton’s Letters of Engagement Guide.

As matters progress, make sure you update your client regularly, and set calendar reminders to prompt you to do so. In lengthy periods with no developments, send a quick communication to the client anyway, to reassure them that matters are on track. (There is of course a balance to strike here – the client may not thank you for multiple emails telling them that nothing is happening, but equally they may become anxious if they hear nothing from you for a long time.)

These steps can all help guard against delays, but crucially can also help evidence that you have acted reasonably in the event of a complaint or claim.

Inheritance tax errors

The risk: The IHT landscape is becoming increasingly complex, particularly with the changes to agricultural and business property relief; rising property prices and the upcoming changes to the IHT treatment of pensions bringing more estates into the IHT liability bracket; and complicated family arrangements requiring careful tax planning. It is therefore unsurprising that we do see some claims resulting from an error in the IHT planning advice given. For example, some claims have arisen because of a failure to submit IHT forms by the deadline in order to transfer an unused nil rate band from a predeceasing spouse.

How to manage it: The first way to manage this risk is to be clear on scope of work when accepting instructions, and to think about how much of the work needed is within your or your immediate team’s core competencies. Do you have the specialist knowledge and qualifications within your team to provide the tax advice needed? If not, make sure the client knows that they will need to obtain specialist tax advice as part of their estate planning. If you will not be providing that specialist tax advice, make sure the client knows this. Ideally, signpost them to other firms or individuals who can provide this advice. Make sure you are working effectively with these individuals to ensure that you are taking a co-ordinated approach and that your advice does not conflict with theirs.

Training is key. If you are to be providing tax advice, do make sure that you are investing in regular training to keep up to date with all relevant legislative and regulatory changes. Similarly, if a more junior fee earner is dealing with issues relating to IHT, capital gains tax or other tax issues, close supervision will be key to ensuring that something is not overlooked.

Capacity of clients

The risk: On occasion we see intimations of circumstances where someone with an interest in an estate claims the testator did not have capacity for giving instructions, and that the lawyer who prepared the will should have identified this.

As the population of the UK ages, dementia rates are rising. According to research by the Care Policy and Evaluation Centre at the London School of Economics, the number of people with dementia in the UK is predicted to rise to almost 1.6 million by 2040. If the number of clients with symptoms of dementia continues to increase, then the need to ensure capacity has been carefully considered – while always important – will become more acute.

How to manage it: It is always good to have the Law Society of Scotland’s guidance on capacity in mind and to return to it when you have a case where capacity is, or may be, an issue: B1.5: Capacity Generally and B1.5: Vulnerable Clients Guidance.

Where there is a question mark as to capacity at the outset, bring a colleague to a meeting with the client if resources permit, for that all-important second opinion.

When there is ever any question over capacity, don’t just rely on telephone calls and emails or letters for all communication with the client. A face-to-face meeting will be needed at an early stage.

If you decide you need input from another professional to assess capacity, for example a GP or psychologist, get their advice in writing. If they don’t put it in writing to you, put their verbal advice in writing yourself and ask them to confirm that you have recorded their advice correctly.

An individual’s capacity can change over a short period of time. With this in mind, keep capacity under review. Throughout a lengthy transaction, have diary reminders or case plan prompts to see the client, check their capacity and note any changes.

In some cases, you may know that there are tensions or conflicting positions within the client’s family. If this is the case, and if you can foresee a potential challenge based on capacity, perhaps consider what you can do to ‘future proof’ a will in case of a dispute.

One precautionary step would be to obtain your client’s consent to disclose the steps you took to establish their capacity, to evidence that capacity was properly assessed if it is challenged. You could also consider taking an affidavit from the testator explaining in their own words what they want their will to do.

Lost wills

The risk: We have also seen intimations of situations where a principal will has been lost, particularly where two firms have merged and the storage site for one firm has had to move, with a principal will going missing in the process. A lost principal will can of course result in the need for an action to prove the tenor of the will, with the added expense that this brings.

How to manage it: This is all about best practice storage procedures. If you don’t already have one in place, introduce a fully itemised wills storage system, with procedures for logging a will in, and out again if it needs to be retrieved. The log should specify the date and the name of the member of staff who has removed it from storage. It should also specify a brief note on why the will is being uplifted and where it is going. This should be a centralised system that all relevant staff can see.

Crucially, make sure that training on the system is in place for all staff. Make sure that any new joiners are taught how to use the system.

Discuss wills storage with your client. Would they rather keep their principal will themselves? If so, they do need to understand the importance of the principal document. You will also need a clear record of sending the will to the client, and confirmation from them that they received it.

Finally, you could consider registering the will with the Books of Council and Session. This does of course mean that the client’s will is on public record and can be searched for through the Registers of Scotland after their death, but if the client has no issue with that then registration provides an extra safety net.

For a checklist that deals with all the stages of preparing and executing a will, including secure storage, see Lockton’s Red Flag Checklist.

The takeaways

As more estates become complex and client expectations continue to rise, the risks highlighted in this article are just some of those that can escalate quickly if not actively managed. The key takeaways here are the importance of:

• Clear scoping of instructions
• Strong client communication
• Detailed record keeping

These disciplines are central to reducing exposure to complaints and potential claims. Embedding them into your routine practice will help enormously to protect both your clients and your firm.

Written by Anna Forsyth, Lockton, with thanks to Jennifer Connolly, senior associate at Turcan Connell.