Banks are offering law firms a myriad of specialist services, from loans and mortgages to help for clients with paying legal fees, as they target a key market. And lawyers are counting the benefits, reports Nigel Hanson
The legendary entertainer Bob Hope once quipped: ‘A bank is a place that will lend you money if you can prove that you don’t need it.’
He may have had bitter personal experience, but his jibe is a far cry from the banking services currently available to law firms.
Over the past decade, financial institutions have redoubled their efforts to woo and retain professional customers with a tantalising array of bespoke services.
Banks certainly seem to be on favourable terms with lawyers. Solicitors have better relations with their banks than other professionals do, according to a recent survey (see [2004] Gazette, 19 August, 4).
Many banks have identified the legal sector as a key market and have fashioned a range of specialised products for both solicitors’ firms and individual partners.
It means firms are increasingly able to negotiate attractive deals, especially if they adopt an attitude of ‘you scratch my back and I’ll scratch yours’.
Ask any bank what it offers law firms and the standard response is that everything can be tailored to suit - in other words, ‘let’s talk’.
Rates, loans, mortgages, banking software - all these are now bargaining chips in the nexus with practitioners.
Even legal fees are entering the equation. Barclays is pioneering loans for solicitors’ clients so that fees can be paid up front. The bank may agree to take on the risk of collecting payment from the client later while a firm gets its fees early.
It is an idea aimed at cementing the relationship between a firm and its bankers. Linked personal banking facilities, such as capital loans for partners, may also form part of an overall package, while banks such as HSBC add the carrot of versatile IT solutions.
HSBC’s Client Money Manager, for example, is a PC-based client banking service delivered to desktops via a dial-up modem connection. The system can handle both sterling and foreign currency accounts, and allows immediate access to a range of real-time balance, transaction and accrued interest information.
An unlimited number of client accounts can be included along with the ability to print statements on a firm’s headed paper.
Meanwhile, Bank of Scotland is promoting its SmartFinance package, trailed as the UK’s first offset mortgage for small businesses. This product pays base rate interest on business current account credit balances to offset the interest costs of a commercial mortgage.
So what factors should solicitors consider when reviewing their banking arrangements? Clearly, different types of practice will have different priorities, but common themes emerge.
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Barclays 2.52 % (Clients’ Premium Acc.)
NatWest12.68 %(Solicitors’ Reserve Acc.)
Coutts13.53 %(Money Market Calls Acc.)
Bristol & West24.75 %(Client Deposit Acc.
(undesignated))
Bristol & West24.45 %(Client Deposit Acc.
(designated))
Lloyds TSB 2.73 % (Clients’ Call Acc.)
HSBC 2.35 % (HSBC Client Deposit Acc.)
Bank of Scotland34.44 %(e-Business Deposit Acc.)
Bank of Scotland34.39 %(Business Bonus Acc.)
Birmingham Midshires34.10 %(Client Investment Acc.)
Notes: it is difficult to make direct comparisons because rates are only one element of differing overall packages and conditions. Rates are subject to change.
1: part of Royal Bank of Scotland Group.
2: part of Bank of Ireland UK Division.
3: part of Halifax Group.
Bob Rabone, finance director of City-based Eversheds, which has ten UK offices, speaks for many when he says: ‘Service is often more important than cost.’
He says developing a good relationship with a bank can spawn practical benefits such as gaining an extra half-hour’s trading time for CHAPS transfers on a busy Friday at the end of the month when lots of conveyancing completions are going through.
Eversheds has dealings with all the main banks, but historically has had more extensive links with the Royal Bank of Scotland Group (RBS NatWest) and Barclays.
Mr Rabone estimates that hundreds of the firm’s corporate lawyers are ‘forging and reinforcing relationships’ with bankers every day in their casework.
He says: ‘Law firms’ relationships with banks are complex and multi-faceted. Lawyers have to operate at several levels with their bankers. Taking an aggressive approach based on price isn’t practical. One has to take a more pragmatic approach.
‘You would find that, by and large, the prices available in the market are within very narrow percentages anyway.’
Costs are reviewed regularly, but ‘service and rapport’ carry most weight.
‘The relationship with banks is by its very nature double-edged,’ he says. ‘Banks are among the firm’s biggest clients and among the most significant introducers of new business.’
The availability of partnership loans is another consideration. Mr Rabone says Eversheds’ partners are free to approach the bank of their choice.
‘If you’re in a firm that has just one banker, it could preclude a partner from having a relationship with other banks,’ he says.
As regards deposits of client money, interest rates in the marketplace may vary depending on a bank’s strategic needs.
‘One should always be talking to the banks to negotiate the best rate,’ says Mr Rabone. ‘Banks often have very different approaches. HBOS [Halifax Bank of Scotland], for example, are much better on price for client money deposits.’
Bristol-based Alan Jones, finance director of Bevan Ashford BBL, maintains links with a number of different banks for client deposits and ‘just one or two’ banks for the firm’s main business banking requirements.
His criteria? ‘Banks need to be able to respond quickly to large projects,’ he says. ‘We’ve been looking at options in the marketplace and talking to several banks over the last six to 12 months. The key thing for me is the relationship. To make a change is a very serious decision because it affects a lot of relationships within the business, so we don’t take such decisions lightly.
‘I am keen to improve on the ability to manage client account money more effectively. There are certain solutions out there that are better than others. These solutions only really come to light when you try some of these things yourself.’
He says he has found RBS NatWest’s solution suits his firm well as it enables accounts to be opened and closed quickly, and money moved around.
‘We’ve only really started working with them in the last three to six months,’ he adds. ‘I think they have a system that works well for law firms. It meets the regulations such as the Solicitors Accounts Rules and the level of functionality is good.’
He says he is now keen to enhance the firm’s electronic links with its major clients to speed up the collection of fees and deposits.
For smaller firms, a bank’s proximity and ‘personal touch’ may be decisive.
Valerie Dey, accounts manager at four-partner Newcastle firm David Gray Solicitors, is pleased with the service her firm gets from HSBC, which has a branch ten minutes’ walk from the office.
The firm’s caseload is 80% legal aid, although it also undertakes conveyancing and its immigration work means it often has to transfer funds internationally.
‘We bank with HSBC and find them very helpful and easy to deal with,’ says Ms Dey. ‘An important consideration for us is having a direct line to your account manager and the bank staff rather than having to call a central number, as is the case with a lot of banks these days. The personal service we get is excellent.’
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HSBC has supplied its software, Hexagon, which enables the firm to download its own statements and send money virtually anywhere around the world.
A bank representative visits the firm annually to negotiate charges. HSBC has agreed free telegraphic transfers - a benefit that is passed on to clients in the form of cheaper conveyancing.
Ms Dey is satisfied with the rates. ‘We understand the bank has to make a little bit of money out of us,’ she says. ‘If there’s any change with the bank manager or assistant manager, they ring us up and bring the new person down to meet us. I have feeling that if we had any problem at all, we could ring the bank and discuss it.’
She adds: ‘If you put that we get free telegraphic transfers, every firm will be ringing up their bank to negotiate. It wouldn’t be a bad thing - the banks make quite sufficient profits as it is.’
How, then, do the banks view matters? Helen Kelly, a relationship director with Barclays’ professional practice unit (PPU) at the bank’s London-based Lombard Street branch, says an understanding of partnership finance is vital.
She says Barclays decided about five years ago to deepen its understanding of specific business sectors, such as law. The PPU, established in 1991, now deals with many leading law firms.
Indeed, Ms Kelly estimates that Barclays and RBS NatWest provide at least some of the banking for each of the top 100 firms.
She says: ‘If you get to know your customers better, you can add more value. It enables us to do more business because we are ahead of the competition.’
There is an element of symbiosis in the relationship between firms and their banks. The banks have panels of ‘approved’ law firms to which they refer legal work and, in turn, tend to profit from any banking requirements that ensue. Barclays’ own panel currently comprises about 30 firms.
Ms Kelly says: ‘You couldn’t write an article on this subject without mentioning the word "reciprocity".’
Almost everything is negotiable, it seems, in these mutually beneficial alliances.
‘Interest might be available on office account credit balances,’ Ms Kelly explains. ‘Some firms are allowed to offset client account monies against their office account. There might be discounted rates for high-volume transactions. With electronic banking, a firm that uses its own CHAPS system will be able to do it much cheaper than those using a bank’s administrative staff. Efficiency is a key concept.’
Simon Prideaux, a relationship director at RBS NatWest, agrees with the assessment that his bank and Barclays have cornered ‘a large market share’.
Checking out business: Coutts has clients on its books ranging from sole practitioners to a top-ten law firm
He says: ‘Our biggest selling point is an understanding of the market. We deliver this through specialists. There’s an understanding of the market and the regulatory climate. At the top end, it’s a rarefied field of just a few banks, and as you move down the size range of firms, the dominance becomes less marked. There are more banks involved and firms’ needs are perhaps less sophisticated, too.’
Mr Prideaux, one of nine RBS NatWest law firm relationship directors in London, says there are several strands to consider.
‘We tend to see law firms in three different lights,’ he says. ‘First, there’s the firm itself - usually a partnership but increasingly a limited liability partnership, and much more akin to a company. Then there are the partners of the business, who own it. Often they need help from the bank to fund it. It’s quite tax efficient to borrow money that goes into the firm as working capital. Finally, there are the clients and the question of what do we help firms do with the money they hold for clients.’
He adds: ‘There’s a lot of regulation, from the Financial Services Authority and the Law Society, so there’s quite a lot of sector knowledge to have. Not all banks have specialist units who concentrate on that.’
To speed up transactions, firms banking with RBS may utilise software called Royline, which covers both office and client accounts. NatWest customers are offered a programme called BankLine.
When deciding where to deposit client money, Mr Prideaux says firms should scrutinise a bank’s global package, not simply an off-the-shelf interest rate that may not be the highest on the market.
One-off deals can usually be arranged, he says, such as placing a substantial client deposit on the money markets to get a better rate. If an approach is made to the bank, various options may be offered.
Mr Prideaux says: ‘Where firms hold client monies in circumstances where they are not obliged to account to clients for the interest, we give them recognition of this credit as offset against debt in other accounts. We also offer something called client monies service. A number of separate deposits are concentrated into a single account, but they are recognised as though they are still a series of separate designated accounts. They attract a higher rate of interest, but can still be opened and closed quickly by firms.’
Perhaps unsurprisingly given its location in London and reputation, well-known private bank Coutts & Co also has a market share.
Chris Dos Santos, senior commercial banker with Coutts’ professional practices team, says it has a large number of five-to-ten partner firms on its books but its customers range in size from sole practitioners to a ‘top ten’ law firm.
Firms are also being courted by many other banks, including Bank of Ireland and Lloyds TSB. Again, bespoke deals are the name of the game.
Jeff Martin of Lloyds TSB’s business development team says: ‘Of all our business customers, legal specialists have some of the most diverse banking needs, with every firm of solicitors having unique requirements. Solicitors are offered a standard current account as well as general and designated client deposit accounts, and a range of borrowing facilities.
‘We recognise, however, that there is no "one size fits all" approach that will suit every customer and we package our services together to suit the individual needs of every business.’ In addition, the biggest City firms, armed with strong profit records and balance sheets, are often able to borrow money on very favourable terms from investment banks, such as 20-year fixed rate loans.
In short, lawyers have everything to play for.
Bob Hope’s swipe at banks deserves a smile, but now that financiers are negotiating as more equal partners with firms, solicitors could be laughing all the way to the bank.
Nigel Hanson is a freelance journalist
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