Banking on service

A straw poll of practising solicitor acquaintances on the question of whether they think they are getting a good service from their bank (and I include building societies under this term) gave a majority response of “no”, on both a firm and a client level. Even more interesting was the reply “nothing”, to the follow up question, “what are you doing about it”?

Further investigation reveals it is at client level that dissatisfaction runs deepest.

Banks form an integral function of the daily operation of practising solicitors. Law Society of Scotland rules are specific on the custody of clients’ funds and this has effectively created a monopoly for the banks. Given this situation, one would expect that the banks have a duty to provide the best service possible, but is this the case?

A similar situation existed several years ago between lawyers and accountants, whereby lawyers were required to submit an accountant’s certificate on a bi-annual basis. The Society terminated this arrangement principally on the basis that although irregularities were taking place, this was not discovered during the accountants’ test checking and consequently was not reported. The system was replaced by self-certification, placing the emphasis on solicitors to regulate themselves, policed by the Society through a procedure of visiting firms to carry out checks on their compliance with the rules. Whilst irregularities still occur, this system is more effective than the one it replaced.

It is difficult to see a way in which the Society could adopt a similar approach in relation to the system currently in use for the investing of clients’ funds, and it looks very much as if solicitors will just have to live with this. However there is nothing to stop them trying to improve the services they receive.

Fault but no fault

We should first identify what solicitors are looking for from their bank. Solicitors realise that banks do have a captive market in their field, and in the first instance they expect a good service in banking terms, and are hopeful of work referrals.

The solicitors’ basic expectation, in banking terms, is a reliable, prompt, error-free service. As solicitors are responsible for reporting any breaches in the rules on a six-monthly basis, the last thing they want is to be reporting recurring breaches on a regular basis, especially if these result from bank errors outwith their control. Previous experience with solicitor clients indicates that approximately 50% of the reported rule breaches relate to errors in bank transactions, with again approximately 50% of these being due to the banks. It’s bad enough making your own mistakes, but galling to be blamed when it’s not your fault.

Surely even the banks, given their overall monopoly, must be embarrassed at this statistic, although I wonder whether the banks fully realise the implications a bank error has on their solicitor customers. In the majority of transactions the timing of events is critical and it is all very well for the banks to argue that if an entry is missed it can be processed first thing next morning, or a mis-posting can be rectified at a later date. The effect of this delay may lead to a deficit on the clients’ ledger account that the solicitor is required to report.

Causes of friction

Delays by the banks in notifying solicitors of receipts of funds into client accounts can cause settlement delays, which can result in turn in interest settlements being due by the clients – another source of annoyance to solicitors.

Although in these circumstances solicitors do ask for a letter from the bank confirming the reason for the breach of the rules, it is still embarrassing to have to report errors on a regular basis, as over a period this is going to present a poor impression of the firm to the Society. Also, any delay and additional cost to the client can cause friction in the relationship between client and solicitor. The client is only interested in the successful completion of the transaction and it is the solicitor who will face the brunt of their wrath if things go wrong, no matter who is really to blame.

The timing of the receipt of bank statements, especially around the cut-off time for the submission of the self-certification certificate, is also an issue. Some banks do not send out statements when there is no movement in the account and this can cause delays in the reconciliations prior to the submission of the certificate.

The centralisation of dealing with the specified client accounts to head office can further distance the solicitor from the bank and can lead to delays in clearing up queries.  

Business worth having

The banks may argue that the volume of transactions undertaken on behalf of solicitors, and in certain cases the last minute nature of instructions given to them, leads to a greater incidence of errors arising. It does seem to me that the incidence of errors leading to breaches has increased over the last few years. I think this is due to the banks’ drive to computerise their services and reduce staff. Solicitors’ cashiers no longer seem to have the same level of personal contact with bank staff, and it is highly doubtful whether the staff they deal with do appreciate the impact of an error on their solicitor customers.

Possibly the banks consider, in overall monetary terms, that the size of the solicitors’ market is not significant. However, given that in Scotland there are approximately 1,250 practising firms, and from my own experience, assuming an average amount held on behalf of clients of approximately £1.25 million per firm, this gives an indication of the level of the funds held by the banks. Assuming a turn on interest rates of between 0.25% and 0.5%, this would indicate an annual gross profit of between approximately £4 million and £8 million. This may be insignificant in the context of the banks’ super profits of today, but, in the words of Arthur Daley, still “a nice little earner”.

There are also issues with banks and their inconsistent approach to money laundering on opening new accounts. It always seems to be the case that when things have to be processed in a hurry the banks adopt a very pedantic view to money laundering procedures. This does create friction and is perhaps an indication that not all bank staff understand what impact a potential delay in a transaction can cause.

As solicitors become more commercial in their approach to attracting new work there is, not unnaturally, a feeling that if they are giving business to one of the banks there is no reason why they should not be getting work referred to them. This, in many instances, is not always forthcoming and there is a definite feeling that any work from the banks is going to a favoured few firms.

Whilst, given the number of solicitors’ practices, it is unrealistic to expect that the banks will be able to provide them with an endless supply of work, there is a feeling that more could be done to spread the work about, and work passed on should be at a competitive rate.

Cause for complaint

It is easy enough to identify the problem, but identifying a solution is much more difficult. We do live in a society where service dissatisfaction results in changing the provider. Solicitors themselves experience this as clients now are much more liable to change solicitors, and in more extreme cases resort to litigation if things go wrong.

There is no indication that one bank is offering a better service than its competitors. Indeed, even on an individual bank basis the level of service can vary dramatically from branch to branch. As mentioned above, even if dissatisfied with the service provided, solicitors appear to be reluctant to do much about this. I think there are two main reasons for this: the first being that to change might just be jumping out of the frying pan into the fire, and secondly, whilst it may be relatively straightforward to move the firm’s accounts, switching the clients’ accounts causes a large amount of work and in itself may generate even more problems.

What should solicitors be doing to address the issues involved? I know that the Society does have meetings with the clearing banks where the standard of service provided is discussed. At a local level however solicitors have to communicate constructively with the banks to try and improve the service. Continuity of bank staff and an appreciation by these staff of the need for accuracy and the immediacy of the transaction would help. Ideally, solicitors want to be in position to have instant access to a relationship manager who understands the issues involved in the nature of the transactions that the solicitor is carrying out and, probably most important of all, can make a decision.

The indications are, however unpleasant, that the firms which have this relationship are the ones which complain most vociferously when there is a problem and, almost through a war of attrition, obtain a better level of service than their counterparts, who are more accepting of the banks’ services.

On the part of the solicitors, perhaps an appreciation that leaving things to the last minute is not always the most efficient way to approach an issue would help. Improved relations and mutual confidence may well be of assistance in obtaining referred work from the banks.

If matters do not improve, a comparison might be useful, perhaps through the local faculty, as to which firms are satisfied with their bank branch, who their contact is – and moving there. If things don’t improve, I suppose that with the level of funds held by solicitors a few entrepreneurial souls could get together with their English and Welsh counterparts and start their own bank – or would this solve the problem? Somehow I doubt it!

    Alex Johnston is an associate with Campbell Dallas, specialists in the SME market. Alex can be contacted at their Bearsden office on 0141 887 4141