21st August 2024, LONDON –

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.
Solicitors hold money in client accounts for many reasons, for example during a commercial deal, or during a house purchase. And doing so before distributing money from an inheritance is a common reason, with probate often taking months, or even years.New research from personal finance comparison site finder.com has found that the 7,000 or so solicitors firms in England and Wales which hold client money could have made as much as £1.3 billion in interest from this money during the period 31 March 2022-30 April 2023*.

This figure is an estimate based on the Law Society’s Financial Benchmarking Survey 2024 (which covered income in this period). The survey of 147 solicitors 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.

This surge of 1,000% in interest income prompted the Solicitors Regulation Authority (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”.

How much interest do solicitors get and how much do they pay?

The researchers found a Client Deposit No Notice account, which is suitable for solicitors, paying a rate of 2.7%. And, an industry insider told Finder that it was possible for firms to get around 4.8% but banks rarely advertised such deals.

Finder reviewed 6 national and regional solicitors’ firms offering probate services in August, discovering that, based on their stated policies, all were passing on minimal interest: one firm offered up to 0.3% interest but only if the total exceeded £100, one kept all interest unless it surpassed £250, another always paid 0.5% less than the bank’s rate and 3 offered rates of 1% or up to 1%. None of the firms was 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.

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.”Liz Edwards, money expert at finder.com, 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 while 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.To see the research in full visit: https://www.finder.com/uk/banking/solicitors-interest-on-customers-money (from Wednesday)

Methodology:

* The estimate was reached by using an average figure from the 147 firms in the survey and extrapolating this to all the firms in England and Wales which hold client money. However, the figure is a rough estimate because the survey was biassed towards firms with a high turnover. Finder researchers analysed the client interest policy of 6 regional and national solicitors on August 6th. These were found online by searching for terms relating to interest.