REGULATION IN THE ESTATE ADMINISTRATION MARKET - THE STORY CONTINUES

The discussion on regulation in the independent sector continues and there have been a number of interesting developments in recent weeks. There were initially concerns that the new Co-alition government would not support the implementation of the Legal Services Act 2007 but now Jonathan Djanogly, the Justice Minister has confirmed the governments commitment to the Legal Services Board, the Office for Legal Complaints and the establishment of Alternative Business Structures (ABS).

For the Independent Legal Sector, the key issues remain as to whether Will Writing needs to be regulated,  to what extent will Probate and Estate Administration services be extended as a reserved legal activity, and who will be the approved regulator (or regulators)  for Alternative Business Structures.

Regulation of Willwriters and Estate Adminstration

The Legal Services Board (LSB) launched a workshop on Will writing on 26th July 2010 and invited representatives from interested parties to attend. The stated purpose was to bring together a range of organisations with different interests and experiences of the Will writing industry. This group would share knowledge and scope the LSB examination of the failings of the current system that may harm consumers and consider different options for protecting against them. 

The outcome was to request the Legal Services Consumer Panel to carry out consumer research to identify whether the Will writing industry should be regulated. The call for evidence by the Consumer Panel to members of the public, lawyers and organisations with an interest was published on 22 September 2010 and will be closed by December of this year.

The whole debate has been put into a new perspective by the recent two part report from Stephen Mayson a leading academic in legal services. Stephen serves on a number of committees including the Legal Services Board's research strategy group, the Solicitors Regulation Authority's ABS reference group, the Bar Standards Board's advisory panel on the Legal Services Act, and the Bar Council's policy advisory group and ABS working group.

Surprisingly, Stephen has come down firmly against expanding the number of Legal Activities which are considered to be reserved activities and this position is set out in a new strategic discussion paper published by the College of Law's Legal Services Policy Institute.

In "Reserved legal activities: history and rationale" the paper investigates how the six existing reserved activities (which include applying for probate) came to be enshrined in statute under section 12(1) of the Legal Services Act 2007. The paper highlights the “regulatory gap” whereby clients who procure activities which are not reserved or regulated, from providers who are not regulated as qualified or licensed practitioners, may be left without any protection.

However,  he concludes that there appeared to be no consistent rationale for reserving legal activities; there has been no structure as to how certain activities became reserved in the first place and it has simply been done ad hoc.  Often this has been simply done just by confirming a prevailing practice, or possibly through political influence, and then justified after the event.

The opening paragraphs of the report says  “We must express surprise and concern that the structure appears to be built on such tenuous foundations”. The structure refers of course to the Legal Services Act 2007 and the Legal Services Board’s mandate to recommend the expansion of reserved activities. A second paper to be released later this year will explore the potential public interest rationale for the regulation and reservation of legal activities in order to suggest a more contemporary approach 

While Stephen Mayson may suggest  that no additional legal activities should be added to the list of reserved activities, there are also still unresolved problems in the Estate Administration market namely:

• Is the pricing fair and transparent?
• Do I need a professional executor?
• What happens and how am I protected if things go wrong?

The current focus of the media remains centred on the Will writing sector and as a result of the recent Panorama program “Will Writing – The Final Rip off” now actively questions the role of unregulated advisers and estate planners delivering Probate and Estate Administration Services to the public. The practice of pre-selling these services when a Will is being written is now definitely under the spotlight.

The final decisions will not be made until the various reports and investigations are concluded and it is likely that the whole matter will stretch out into 2011.

Alternative Business Structures (ABS)

Meanwhile ABSs are continuing their relentless march to create credible commercial structures offering commoditised legal services. At the forefront are The CO-Operative Legal Services and Halifax Legal Services who are leveraging their brand name, marketing skills and  extensive budgets to offer legal services to their loyal customers while Which Magazine, the consumer champion has now also entered the market. Parts of  the delivery of these services are outsourced to various panels of solicitors.

In the background the Legal Services Board (LSB) has continued making contingency plans to regulate ABSs itself if none of the current approved regulators (AR) are able to assume the role of a Licensing Authority.(LA)  Possible LAs include the Council for Licensed Conveyancers, the Solicitors Regulation Authority and the Institute for Legal Executives. Potential LAs will need to move quickly and the challenges to them to apply for this status continue to grow. 

As an example, the latest consultation paper released on September 29th this year by the LSB now proposes that ARs should set out their compliance strategy for referral fees and arrangements when setting out their regulatory arrangements, including publishing information about the operation of referral fees, proposals for tightening up compliance and generally more transparency amongst their regulated community. This will clearly be a challenging task for an organisation wishing to oversee ABS’s where referral fees, fee sharing arrangements and commission structures are often an integral part of their commercial business model.

As previously stated, Kings Court welcomes the introduction of regulation into the Probate and Estate Administration sector, and  would additionally urge the LSB as follows:

1. Make decisions and move as quickly as possible to ensure that rogue executors are stopped from acting and that beneficiaries are treated fairly
2. Eliminate the confusion of the current system that has made the preparation of the paperwork and applying for a grant a reserved activity, but allows any one to undertake the Estate Administration process for sometimes extortionate fees and  to collect in and handle estates monies with no oversight
3. Establish a level playing field for ABSs – do not penalise those businesses that have invested in systems, processes and resources to give an improved service to clients and enable them to offer benefits such as home visits and fixed fee quotations.
4. Include a review of “pre-paid probate” that allows services to be sold to clients where the actual service and quality of the product is unknown and possibly not in place

Nothing can stop the changes to the legal market now the flood gates are open – we simply need to manage the new entrants and regulate to the extent that is necessary to protect the consumer.

William Feeny is a Director at Kings Court Trust Corporation. You can reach him on 01225 787107 or at william.feeny@trustcorporation.com