Solicitors pocketing millions in interest on customers’ money
Finder probe uncovers firms keeping the first £250 of interest, and others paying a miserly 0.3% to clients
Bereaved families are among thousands of people being cheated out of interest on their own money by solicitors that have pocketed millions as a result.
The latest figures reveal an annual rise of 1,000% in solicitors’ income from interest on money held in client accounts in 2023, largely driven by the rise in interest rates.
Solicitors hold money in these accounts for many reasons – for example during a commercial deal, or during a house purchase or before distributing money from an inheritance.
An industry survey of 147 firms in England and Wales reported that their total net interest income from clients’ money in 2023 was £27.5 million, compared with £2.6 million in 2022.
The survey – the Law Society’s Financial Benchmarking Survey 2024 – was published in March and included firms handling probate, which is the process of gathering in and distributing someone’s money and assets after they die. Probate can take months, or even years.
There are around 7,000 firms in England and Wales which handle client money, according to the industry watchdog, the Solicitors Regulation Authority (SRA). Finder estimated that, based on the average interest income in the survey, firms in England and Wales could have made as much as £1.3 billion in interest during the period covered by the survey (31 March 2022-30 April 2023). This is a rough estimate because the survey was biassed towards firms with a high turnover.
A warning from the watchdog
The surge in income from interest prompted the SRA to issue a warning in April, reminding firms of their duty to account to clients or third parties (such as bereaved families) for a “fair sum of interest on any client money held by you on their behalf”.
The watchdog added: “…we have heard of cases of firms doing quite well out of the monies they hold if this involves large amounts and are held for a more significant period.
“Similarly, we have also been told that some firms are not accounting to their clients for anything like the same rate of interest [as they get], and certainly not what could reasonably be classed as ‘fair’.”
The SRA said that it would take action if it had evidence of firms breaking the rules on fair interest payments. A spokesman told Finder that there was nothing in its records to indicate that clients had complained about the issue, however. And a spokeswoman for the Legal Ombudsman said it did not record “that level of detail” so was unable to say if it had received such complaints.
How much interest do solicitors get and how much do they pay?
Solicitors use a special type of business bank account to hold client money.
Finder checked interest offered on client accounts suitable for solicitors – rates we saw were between 1.66% and 1.96% AER for those depositing £1 million or more at big banks. But we found a Client Deposit No Notice account from Buckinghamshire Building Society paying 2.7% AER (variable) in August. And an industry insider told us that it was possible for firms to get around 4.8% – even after the August base rate drop – but banks rarely advertised such deals.
We compared the rates we found with the interest rates stated in solicitors’ client account policies – the “fair sum” they are obliged to pay clients.
A snapshot check online in August of 6 regional and national solicitors firms, all of which offer probate among other services, revealed:
- A firm saying it would keep all interest on a client’s money unless it topped £250
- Another stating it would pay clients interest at “up to 0.3%” with nothing paid unless the total amount topped £100
- A firm stating it would always pay 0.5% less than it received from the bank
- 3 firms giving a rate of 1% or “up to 1%”
- None of the 6 firms willing to pass on any interest earned below £50
Finder asked the Law Society if it believed that firms paying interest to clients of less than 1% while they were receiving well above that figure should increase what they pass on to clients. A spokesperson replied that firms should comply with the SRA’s rules.
The period of the latest Law Society survey – in which firms reported pocketing £27.5 million in interest – ended in April 2023. The Bank of England base rate rose to 5% in June 2023, so figures in the survey that reports next year could be even higher.
Changes coming?
Some experts in the industry have raised this issue.
Graham Reid, a partner at RPC, a law firm which specialises in regulation, said last year: “Given the regulatory pressures being applied to banks and investment platforms to pay more generous interest rates to customers, it’s only a matter of time before law firms face similar scrutiny from their own regulator, the SRA.”
Meanwhile, the Ministry of Justice is exploring how firms are using interest from client accounts, and recently commissioned a study on it. The study will be used to help it consider whether some money – most likely from very small amounts of interest pooled together – could be used to fund legal services for those unable to afford advice.
Liz Edwards, money expert at Finder, said: “Looking through solicitors’ policies was an eye-opener. How can any firm simply decide to pocket £250 of someone else’s money and claim that’s fair?
“For clients, it’s a triple-whammy loss when solicitors have their cash for a long time: they don’t have the use of the money; each day the money is worth less – especially when there’s high inflation – and they lose decent interest they would have got if they’d been able to put it in a savings account while rates are as high as they currently are.
“I know a family who had their probate granted last September and then raised the issue of interest with their solicitor, who had had many thousands of pounds of the family’s money in their client account for at least a year and a half. The solicitor seemed surprised and said the point had not been raised – it was quite clear he’d had no intention of paying interest on the money.”
How to complain
If you think your firm hasn’t given you a fair rate of interest, first complain to the firm itself. If you’re not satisfied with the outcome, you can contact the Legal Ombudsman, citing this as an issue of poor service. If the ombudsman finds in your favour, it can award compensation of up to £50,000 and it might refer the issue to the SRA as a breach of the rules.
Different rules on client accounts apply in Scotland, where solicitors are regulated by the Law Society of Scotland.
