Managing your client risks in difficult times

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Managing your client risks in difficult times

• Peter Scott
• PETER SCOTT CONSULTING

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Professional Firm Risks
Management
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Client risks

• Financial
• Regulatory risks
• Liability to clients
• Reputation

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Your risk management team?

• Who has a risk / compliance manager?
• Can you afford not to have risk /
• compliance professionals?

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Financial risks

• How much is your unsecured
• investment in your clients?

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Managing your client financial risks is a process
Instructions
W.I.P
Work
billing
Cash
Debtors
payment
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Get it right when taking instructions

• Who should make the decision as to whether a
  client or a matter should be taken on?
• One of the most difficult tasks for a Managing
  Partner is to tell a partner not to accept
  instructions

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Taking instructions -engagement letters

• More than just compliance
• Build in protection
• Manage client expectations to reduce complaints
• Frequency of billing / ability to stop work
• Incorporate terms to limit / exclude liability
• LLPs will need additional terms

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Criteria to be applied?

• Credit / cash management?
• Pricing / profitability?
• Nature of expertise required?
• Level of PI cover?
• Know your client
• - reputation?
• - new or existing?
• Conflict checking

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Credit / cash management

• Work in progress and debtors are credits risks
  but you are not trained or paid to take credit
  risks
• Client vetting
• Credit checking
• Credit limits
• Money on account
• Parent company / personal guarantees

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Work in Progress

• How do you manage your work in progress?
• Do you record time daily?
• Do you age your work in progress?
• Do you review all matters
• - with 30 days WIP?
• - where no bills for 30 days?
• Do you have weekly / monthly billing targets
• Do you agree bills with clients before sending
  them?

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Debtors

• Do you
• Have cash collection targets linked to payments
  to partners?
• Review all unpaid bills over 30 days?
• Use your credit control system effectively?
• Permit partners to stop bill reminders?
• Talk to your clients about unpaid bills?

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Your finance team?

• Who is in your finance team?
• Is the team performing?
• What should they be managing?
• Could they be improved?

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Regulatory risks

• Invest in effective compliance
• Money laundering regulations
• Solicitors Accounts Rules
• SRA / FSA regulation
• Complaints
• Invest in training

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Managing client liability risks

• Best practice
• Engagement letters
• Insurance cover
• If an LLP then operate as an LLP

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Operational compliance iskey to successful use
of an LLP
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1. Letters of engagement

• Problem members may be liable for their own
  negligence in tort if they have assumed a
  personal duty of care to client
• Consider
• disclaimers to prevent the creation of a personal
  duty of care to clients
• belt and brace exclusions / limitations
  designed to exclude / limit liability of members
• Extending limitation clauses to cover members /
  employees / consultants
• Provision to deal with use of the term partner
• Application of Unfair Contracts Terms Act 1977 /
  Unfair Terms in Consumer Contracts Regulations
  1999?

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2. Members agreement

• Problem liability of a member to LLP in respect
  of a claim against the LLP by a third party in
  excess of its insurance cover arising out of
  negligence of member
• Consider
• Excluding duty of care and liability for failure
  to exercise such skill and care as would be
  expected of a solicitor / accountant / other
  professional carrying out such functions in an
  LLP?
• Insurance cover (like D O policies)
• Indemnities by LLP to members in respect of
  liability for negligence as above?
• Excluding the right of LLP if a joint tortfeasor
  to seek contribution against a member or members
  under Civil Liability (Contribution) Act 1978

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Members agreement (2)

• Problem liability of a designated member to LLP
  for breach of duty of care in carrying out
  functions as a designated member
• Consider
• Appointing appropriate designated members instead
  of appointing all members
• excluding duty of care and liability (other than
  criminal) for failure to
• use reasonable care and skill in carrying out
  functions as a designated member?
• be responsible for compliance with legislation?
• Indemnities by LLP to members?
• Insurance (like D O policies)

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Members agreement (3)

• Consider
• No member to act or purport to act as the agent
  of any other member or members
• No mutual indemnities to be given
• No good faith obligation to other members
• No obligation in the event of a winding up to
  contribute in any way to the assets of the LLP in
  accordance with section 74 Insolvency Act 1986
• Avoid partnership language
• Exclude / vary default rules
• Exclude s.994

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3. Insurance implications

• Who needs to be insured?
• D O type policies
• Who pays?
• Level of cover?
• Obligations in members agreement
• Lifeboat policies

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4. Day to day operations on conversion to LLP

• Internal guidance notes and training
• New retainer letters for existing and new
  clients
• New stationary / business cards / bill paper etc
• Empty your wallets / pockets / handbags
• Website / marketing materials
• Signage
• Precedents / documents
• Emails / faxes

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Day to day operations on going

• What should we call ourselves?
• Members?
• Partners?
• Principals?
• Directors?

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Signing correspondence

• for XYZ LLP
• NEVER sign in your own name

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Protecting your reputation from client risks

• Regard your good name as the richest
• jewel you can possibly be possessed of
• Socrates

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Professional Firm Risks
Management
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Protecting your reputation

• Clients are potentially a risk their reputation
  (good or bad) can rub off on your firm
• Check out new clients before you take them on
• Manage complaints
• Use specialist advisers if necessary

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• Any questions?