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Private Client Section

A run for your money?

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Since 2014, accountants and alternative business structures have had the right to undertake non-contentious probate work. Grania Langdon-Down explores the reality of an increasingly competitive probate market

When the Institute of Chartered Accountants in England and Wales (ICAEW) won the right to regulate probate and license alternative business structures (ABSs) in August 2014, it predicted it would have 250 accredited firms on its register by the end of year three. But, with just over 200 firms and more than 265 individuals already approved to do non-contentious probate work, it looks likely to hit that estimate in just over half the time.

And the ICAEW isn’t stopping there. With the numbers ‘far exceeding expectations’, it intends to apply to extend its powers to include further reserved legal activities. While these will be restricted to taxation services, it says the move will complement the work of those offering probate services in relation to personal wealth, tax and financial planning.

So, with the ICAEW going full steam ahead, what are practitioners seeing happening on the ground in an increasingly competitive probate market?

man stealing jars of probate

© omadoig@btinternet.com

A credible threat?

Gary Rycroft, partner at niche Lancaster private client and property practice Joseph A Jones & Co, is chair of the Law Society’s Private Client Section and a member of the Society’s Wills and Equity Committee. He has yet to see an impact from accountants entering the market, though he predicts it will come, and says the ‘real onslaught’ at the moment is from consumers thinking they can do the probate themselves.

But practitioners should be in no doubt that accountants are a ‘credible threat’, Rycroft warns. ‘They are very professional, and have long-standing, regular relationships with their clients, which solicitors don’t necessarily have. A client may make a will, and then, 20 years later, we get a call informing us that the person has died, but we haven’t seen them or their family in the intervening period.

‘So we have to go back to the “family solicitor” role and make sure we maintain those relationships. We also need to get the message across to consumers that probate is a legal process and, if you want to engage a professional, logic dictates the first port of call should be a lawyer who is regulated and insured. But, as usual, we are not always the best at selling ourselves.’

The uptake

Up to June 2016, the ICAEW had received 252 applications from firms wanting to do probate work and has so far accredited 207 firms: 142 ABSs and 65 authorised firms. With a quarter of the 10,000 accountancy firms on its books doing estate administration work, that means only about 10 per cent have so far taken up the option to do probate work.

Peter James, head of regulatory policy at the ICAEW, says it expected it would be mainly sole practitioners and small firms which would take advantage of the rule change, but it has proved to be a broader mix of firms, with greater than expected interest among ABSs.

Accountants are very professional, and have regular relationships with their clients, which solicitors don’t necessarily have 

Gary Rycroft

‘Of those firms we have licensed, one or two have said that it hasn’t achieved a great deal,’ James remarks. ‘But others have said it is the best thing since sliced bread and it has brought in a lot of business, which comes down to their marketing and client list.’

Suggestions that accountants and lawyers will join forces or merge are ‘constantly being mooted’, he says, ‘but I haven’t seen any evidence of that, though it may evolve. There are examples of accountants recruiting solicitors to do probate and other areas of law, but it isn’t widespread at the moment’.

Enduring alliances

Many lawyers were concerned that accountants would jump at the chance to add probate to their estate administration offerings and they would undercut law firms and poach their clients. But Rycroft says there has been a long history of cross-referrals between local accountancy and law firms, which could be jeopardised if an accountancy firm launched an aggressive marketing campaign.

‘The relationship between solicitors and accountants is quite balanced in the way work flows between the two, so accountants won’t want to bite the hand that feeds them.’

Rycroft welcomes the approach by Moore and Smalley, a 20-partner north-west general accountancy practice with 250 staff. It recently sent out a mailshot to local law firms offering to support their probate lawyers by sending in a tax team to help with estate accounts and tax compliance in the law firm’s offices, the upshot being that files stay on the premises.

Karen Hain, head of Moore and Smalley’s professional practices, says that when the probate sector opened up, her firm looked at the options. ‘We decided it would be foolish to register to undertake probate in direct competition with the majority of our legal sector clients,’ she explains.

‘What we have done instead is set up a service to assist probate lawyers. It is easy for us to do a set of trust accounts, for instance, and we can probably do it way more cost-effectively and quickly than a probate partner charging £250 an hour could. We take away that hassle.’

She hasn’t seen any of her local competitors offering probate services, either. ‘If they are, they are doing it very quietly, just within their own client base,’ she says.

Hain points out that the fees for the ICAEW training and assessment, plus the annual probate registration fees and the compensation scheme levy, are ‘quite heavy. You would have to be doing a fair amount of work to make a profit’. A licensed firm, where not all the principals or owners are authorised for probate, with between two and five principals undertaking probate work across two to 10 offices, would have to pay the £3,210 registration fee plus the levy of £1,950. The two-day top-up training course costs £640 plus VAT, and the assessment £160 plus VAT.

The competition

Chartered accountancy and financial advisory firm Kreston Reeves was one of the first, and biggest, firms to register to do probate work, in November 2014. Three partners, led by chairman Clive Stevens, are accredited, and 16 people undertook the ICAEW training.

‘Historically, we have done estate administration in conjunction with lawyers and will continue to do so,’ Stevens declares. ‘We haven’t marketed this offering and have deliberately confined it to our existing client base. We have approached it sensitively, because we have a number of lawyers who we cross-refer work to, and we aren’t in the game of upsetting them.’

Kreston Reeves recently increased in size to 500 people and £30m turnover when it merged with Spofforths, which is also registered to do probate work, in June 2016. This has created one of the largest accountancy and financial advisory firms in the south-east. Stevens says his firm is currently handling between 30 and 35 probate cases, and believes that building that up to 75-100 cases a year is a manageable target, which would bring in an additional fee revenue of £800,000.

Stevens stresses: ‘We like working with other technical specialists to solve the high net worth family problems that go with births, marriages, businesses and deaths. Plenty of our clients have a group of professional advisers they trust – and long may that continue.’

At a recent Law Society Risk and Compliance conference, the SRA’s chief executive Paul Philip made a rallying call to law firms to set up ABSs to grasp the ‘huge opportunities’ for cross-selling into accountancy services and accessing their clients to provide a ‘one-stop shop’. Stevens says his firm hasn’t gone down the ABS route, though Spofforths includes a separate business that employs lawyers to undertake probate work. He is aware of some accountancy firms which have already employed lawyers to handle other activities, such as employment and corporate matters, as well. ‘We are in the SME market and not everybody likes a one-stop shop,’ he says.

‘Our position would be that, in the non-contentious probate world, accountants can deal with the estate administration and the tax aspects of a case. When estates get bigger, we prefer working jointly with our legal colleagues, particularly in the agricultural community, where many clients like a range of professionals who bring different perspectives to help with their affairs.’

Viv Williams, managing director of 360 Legal Group, says it is more common for accountants to employ solicitors rather than merge with a law firm. ‘The vast majority of probate work is administrative and only needs a solicitor for one small part and, as such, accountants have been employing lawyers for this purpose,’ he says.

‘Accountants are also not impressed generally by the management of law firms, particularly the lack of knowledge around the numbers. This is a great opportunity for accountants to apply their administrative skills in a sector which law firms have taken for granted.’

Accountants have so far shown more enthusiasm for going into partnership with financial advisers. Ian Muirhead, chairman of Solicitors Independent Financial Advice (SIFA), says accountants’ greater commerciality has led them to be more receptive than solicitors to joint ventures with independent financial advisers (IFAs).

‘My impression is that accountancy firms are, as yet, having little impact on the solicitor market. But their relationship-based business model will enable them to pick up this business in the fullness of time because solicitors’ transaction-based model is their Achilles heel,’ he remarks.

‘Accountants’ natural market is the business market, and the Legal Services Board has predicted that business owners are more likely to seek legal advice from accountants in future than from solicitors. The fact that so much “legal” work is not reserved to lawyers, particularly tax work, also plays into accountants’ hands.’

Muirhead believes it is ‘fanciful’ that competition between accountants and solicitors won’t become fiercer. ‘Why would accountants become authorised if they did not want to expand their practice remit?’ he argues, pointing out that the Legal Services Board is encouraging the ICAEW to extend its powers to the full range of reserved activities by 2020.

‘Accountants have a better track record from a financial management perspective,’ says James, ‘and they would say they have better experience with the complexities of inheritance tax, as well as settling the other taxes associated with an estate.’

An added selling point is that the probate licence brings with it statutory privilege, remarks James, should clients wish to keep their affairs confidential. He points out that the statutory privilege also extends to estate administration, due to a drafting error in the Legal Services Act 2007. ‘This defined probate as a specific activity, but, in the granting of the relevant privilege, it relates to probate services, which includes estate administration.’

Legal professional privilege (LPP) can also start creeping into accountancy firms, James adds, if they recruit a solicitor who brings their own LPP with them.

What is important, however, stresses James, is identifying where the boundary lies between probate and estate administration. The ICAEW has drawn up internal guidance setting out what a practitioner can do with or without a licence, and it is a disciplinary offence for a member firm to operate outside that regulatory framework.

Offering probate services can also mean the accountancy firm becoming subject to the Legal Ombudsman’s (LeO) remit, James points out. Accountancy services generally don’t fall under the LeO’s remit, but those offering probate services need to indicate in their letters of engagement whether clients can seek redress through the LeO or not.

Solicitors’ usp

For Rycroft, ‘the fundamental point is that probate is a legal process and having a lawyer by your side is no bad thing. Although specialist in probate, solicitors will have wider legal knowledge they can bring to bear if complications arise.’

So far, more than 170 firms have signed up to the Law Society’s Wills and Inheritance Quality Scheme (WIQS). Rycroft, who declares an interest as he was involved in WIQS’ development, says the scheme’s protocol sets out very clearly all that has to be done, so clients can see that what the solicitor is offering is good value.

‘However, for WIQS to grow, it needs to be endorsed by influential people in the market place – charities, care home managers, funeral directors – who can recommend people go to firms with that quality badge.’

For Ian Pratt, probate solicitor and director of RJR Solicitors on the Isle of Wight, his firm’s USP is that it has been on the island for more than 100 years. ‘We have built up a good name,’ he says. ‘We have some eye-catching advertising but, ultimately, it is about personalities. People don’t like going to the mainland, so we pick up a good proportion of the work, from the little old lady with a £10,000 estate to clients with £2m estates.’

With five solicitors doing the work, probate is a core area for the firm. He has not seen accountants coming into the market. ‘People don’t like jumping on other people’s toes,’ he says. ‘Everyone needs an accountant, but they still refer probate matters to us.’

DIY probate

So, with both law and accountancy firms looking to innovative models and flexible pricing structures to increase their competitiveness, will there be enough work to go around? The figures suggest there is. According to private client law firm Wilsons, IHT receipts taken by HM Revenue & Customs jumped to a record-high £4.6bn in 2015-2016, up 21 per cent on the previous year, as more and more people are caught by the IHT net.

However, one of the main challenges comes from the increasing number of people attempting DIY solutions, with all the potential risks that involves. According to the High Court’s Chancery Division, 37 per cent of probate applications didn’t involve a solicitor, up from 28 per cent a decade ago. At the same time, the number of disputes over wills, trusts and probate in the High Court has more

than doubled, up from 289 in 2004 to 623 last year.

‘I am not an old-fashioned protectionist solicitor who wants to keep all the work,’ stresses Rycroft. ‘It is good that people are being empowered and practitioners are increasingly offering an “unbundled” option, but, as a profession, we have to show how we add value to the process.’

The Ministry of Justice’s proposals to increase probate fees could also drive more people to go down the DIY route. While estates worth less than £50,000 would be exempt from fees, more valuable estates could face up to £20,000 in fees.

James believes the chancellor’s plans to take the family home out of inheritance tax will increasingly need external expertise to sort out, even though the act of probate itself will get much simpler. ‘Having been through the process myself recently, I see why people find it challenging.’

Looking ahead

A major priority in the coming years is how law firms can attract young people into private client work. ‘Accountants are better at recruiting young people into this field than we are,’ says Rycroft. ‘Private client is often seen as the Cinderella of the legal world, but it is dealing with real people, their lives, loves, hopes and ambitions.’

As others eye up the probate market, is there a danger that law firms have become complacent? Rycroft thinks not. ‘There is a cliché that probate lawyers are sleepy, dusty people. But we have dealt with unregulated will writers running amok; we have had ABSs and entities with lots of money behind them, like Saga, which have found it really hard to compete with what we are offering. Solicitors will find their way through this additional challenge as long as we keep one step ahead.’

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