Banks on London’s Fleet Street – located amid the country’s highest concentration of law firms (large and small) and the barristers chambers of Inner and Middle Temple and Lincoln’s Inn – are closing their doors and reducing hours of business. Lloyds’ magnificently ornate branch opposite the Royal Courts of Justice shut last year. Barclays has two branches, both operating on reduced hours. At HSBC, most staff are to be found towards the rear – past an atrium containing many machines.
Neither the presence of magic circle firm Freshfields Bruckhaus Deringer, nor sole practitioners on Chancery and Fetter lanes, has stopped the decline of bank branches on this famous thoroughfare.
This is, of course, the way UK banking is going – lawyers are not being singled out for worse provision. For many individual account holders, it has been decades since they saw a branch or account manager in the mould of Dad’s Army’s Captain Mainwaring – a controller of credit who knew his customers.
Business customers, including law firms, had a longer reprieve. And with the law firm model relying on ‘work in progress’, it was in the
banks’ interest to take time to understand legal business; these were, and are, low-risk businesses with a regular need for credit. Overdrafts and loans remain core to what law firms need from their banks.
They should be a good credit risk, too. Even in the most traditional of partnership structures, regulatory commitments ensure a high degree of transparency around financial stability (some high-profile firm failures not withstanding).
Law firm accounts and business plans are also pored over most years by brokers and insurers, as practices move to buy professional indemnity insurance (PII) (see PII feature, page 18).
Yet, to varying degrees, many major retail banks have placed the services they offer to law firms within bigger, more general departments. This is happening at a time when some areas of law are viewed by lenders as ‘high-risk’.
‘For me, it’s all about knowing the sector,’ says Chris Marston, former head of professional services at Lloyds and now CEO of law firm network and consultancy LawNet. ‘There are plenty of bankers out there who understand how to support SME businesses, but the peculiarities of the legal sector baffle them.’
Are the banks paying sufficient attention to the legal sector economy? ‘The four main
banks are showing different levels of interest in the sector,’ observes Viv Williams, consulting director at Symphony Legal. ‘The two with the largest market share, NatWest and Barclays, have around 60% of the law firm market yet seem not to want to grow.’ Their market share has fallen from an estimated 65% in the past few years, he estimates.
From his vantage point – providing advice to SME law firms – Williams adds: ‘NatWest and RBS have the greatest exposure to personal injury and clinical negligence [practices], and are squeezing clients to reduce their borrowings – some on a monthly basis – which [has] exacerbated the position.’
A classic case, perhaps, of a business feeling the bank ‘owns’ them, rather than firms being valued customers with a choice?
Feedback from principals at smaller practices suggests that firms should still be confident to shop around.
Tony Roe, founder of Tony Roe solicitors, recalls: ‘I set up my Berkshire-based niche divorce and family law firm 10 years ago. Before I could open the doors I wanted to get the right relationship with a bank. So I interviewed several contenders. It was rather empowering, if not a little daunting.’
Marston agrees that shopping around is desirable when choosing – or changing – banks: ‘Law firms should ask their banks if they have invested in creating a specialist team which keeps up to date with sector developments. Can they hold a conversation about the regulatory and competitive environment? Have they received any training or external accreditations or ongoing development to help them support their solicitor customers? And there are obligations the other way around, too.’
Loyalty to banks is high in the UK, both from individuals and businesses. Each often sticks with the bank they start out with. But that relationship can change on either side. And if it is not working as well for a law firm, their principals and finance directors should look elsewhere.
Philip Giles, a principal of Essex firm Giles Wilson (and, like Roe, a member of the Law Society Small Firms Division committee), says: ‘Historically, we had banked with Lloyds but about 10 years ago we switched to Barclays.’
Although the Lloyds branch was opposite the Giles Wilson office, ‘their systems had been “developed” to the stage where we could not call them direct and we had to speak to an overseas call centre’, Giles says. ‘After a lot of problems, I gave the manager – the most recent in a long and swift-moving line – an ultimatum. Unless he was prepared to give me his mobile number, then we would go elsewhere. Despite us having dozens of receivership accounts with the bank and a healthy client account balance from our busy residential conveyancing department, the manager was not prepared to help. We then switched to Barclays and, although there have been bumps in the road (mainly when personnel have changed), overall we find them helpful and supportive.’ (Lloyds says it now has relationship managers who are Lexcel-trained – see box.)
Giles Wilson has now ‘had the same relationship manager for a number of years’, Giles says. ‘He keeps in touch and emails me when he is going on holiday so we know who to contact when he is away. We are running training for staff next week on new policies we are implementing about taking clients’ bank details and so on, and he is coming in to deliver part of the training. Next month he is bringing a colleague to give us some cyber-security training. That’s all part of the service.
‘In more recent years the banks have understood that while the days of popping into the branch to see the manager are over, businesses need to have a point of contact who knows and understands the business and doesn’t need to take you through a host of security questions before speaking to you.’
And that elusive manager’s direct line? ‘I do have the manager’s mobile number,’ Giles says.
CASE STUDY – KAREN JACKSON
‘How helpful was your bank when you founded your law firm didlaw?
Really helpful – they gave me the funding I wanted and a manager I could talk to, a real human being. I did a really good business plan and cashflow forecast. Sadly, after a couple of years they eliminated the role and it went to being a call centre deal.
What do you look for?
A personal service with named contacts, for example, or cost and availability of finance [can be] the main criteria. Personal service with a real human being who knows you and your business. Lloyds had this and it was great but then they phased it out for businesses below £2m turnover.
What could banks do better?
Contact through a designated team who know who you are and what you do, so you don’t have to start from the beginning every time you contact them. I moved from Lloyds to Barclays because I missed having a business manager who used to come and see me once a year and check in to see how the business was going. Barclays eliminated that service and I wish I had not bothered to move. I think they are all ‘much of a muchness’. A bank that actually knows your business and understands your needs is what I’d really like – instead of one that relies on call centres and formulae to make decisions. There is no ‘personal’ in banking any more.
Does your bank understand your business model and its risk profile?
No. Nor do they care in my assessment!
Even in a faceless corporate age, such experiences can still be highly individual. Roe has had a better experience of Lloyds. ‘I plumped for Lloyds a decade ago and we have enjoyed a good and, most importantly, an effective personal service. So much so that I have referred a number of start-up law firms to them.’
In general terms, Williams notes: ‘Lloyds are the most active in the sector and are keen to increase market share and promote the profession. I have numerous examples of Lloyds managers specialising with law firms in their region and they obviously have a greater understanding of the complexities of law firm management.
‘I personally have been involved with training bank managers for the past 10 years and Lloyds are actively engaged in the Lexcel process. HSBC have recently started to look at the sector again after many years of showing no interest, reflecting on a degree of progress here.’
What accounts for such different bank experiences? It can partly be attributed to changes within the banks that have reduced their institutional knowledge of the legal sector. But where firms can find a way to engage their bank, as they would their insurance broker or underwriter, then the relationship improves. The financial discipline provided by the bank is helpful too.
This was Roe’s experience when setting up his firm: ‘I really had to hone my business plan in advance and know inside out what I wanted my business to offer and how.’
IN THEIR OWN WORDS
Professional Services is organised as one of the bank’s ‘industry teams’. The nationwide team is headed by Andrea Delay, whose background is in corporate and investment banking, though the email address given with her profile is a generic one.
Relationship managers for law firms are Lexcel-trained. The bank says relationship managers can access a support team whose members have been trained in the SRA Accounts Rules.
Royal Bank of Scotland promises ‘named contacts’ with specialist training: ‘Whether you’re looking for a home for client funds or searching for a long-term funding solution, RBS can help build a tailored approach – not an off-the-shelf product.’ Relationship managers are accredited by the Chartered Banker Institute.
Professional services offering is subsumed within general business banking.
Promises a UK-based ‘dedicated telephone and processing service’, and, ‘face-to-face meetings with our experts and… guidance from our dedicated relationship managers. Their in-depth knowledge spans the sector, with insight into the business needs of chartered surveyors, legal practices, professional accountancy firms, architectural practices, brokers, insolvency practitioners and investment managers’.
Groups professional services firms together, noting its commitment to serving ‘all business models, from traditional partnerships to publicly listed companies’. It adds: ‘We provide a money management platform, a partnership for IT leasing and a programme of information and networking events.’
Williams alludes to a real shortcoming in the business planning of many firms that are seeking to appear trustworthy and credible to their bank: ‘We have a crisis in succession planning and banks are nervous about funding the smaller practices, particularly when younger potential partners no longer want equity.’
Marston says: ‘Solicitor firms should keep the bank informed of what’s going on, seek meetings proactively, share bad news as well as good – and in a timely fashion. Bankers don’t like surprises. Don’t be surprised when a banker asks you for forecasts, not just historical financial information.’
He asks firms facing a sceptical bank: ‘Would you drive your car by reference only to the rear-view mirror? Ask your bank about its appetite for lending to the sector.’ Banks set specific lending policies for sectors that are important to them, he notes, adding: ‘Solicitors firms are usually important, not so much for the lending done, but for the value of client account balances. Some banks use a “traffic lights” system. Does your bank classify lending in the legal sector as green, amber, or red?’
LawNet member firms typically have turnover of between £1m and £25m – a grouping used by some major banks in categorising law firm clients.
A bank engaged with the legal sector will also have views on certain parts of the legal sector economy. ‘In summary, all banks are very nervous about changes affecting specific disciplines [such as] crime and PI,’ Williams concludes.
Many law firms are trying to automate some aspects of their interaction with clients – using customer relationship management tools to track their needs and experiences, and of course to save money as margins are squeezed.
They appreciate that there is a balancing act in introducing what is in some respects a less personal – but they hope more sustainable – service.
Against a background of reduced legal sector knowledge in many banking practices, the challenge is for law firms to make themselves heard and understood. They have much to gain from eschewing the traditional inertia that applies to our banking arrangements.