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How do law firm fees and complaints management companies charges stack up?

Complaints management companies and law firms alike charge fees to mount a complaint on behalf of clients to recover potential financial losses. But what impact do these fees end up having on the final payout that they might win for a client?

It may be more than you imagine.

Indeed, according to the Times, one legal firm is charging 40% of the damages they recover – plus VAT.

AKM Legal is thought to be representing 19,500 complaints relating directly to the recent St. James’s Place saga, where they are compensating customers who had paid for annual reviews that they never received.

Read more: Hold on tight: The FCA takes financial advice firm on an uncomfortable £426 million ride

With £426 million having been set aside to compensate clients, this does beg the question, “How much is actually arriving with the customers they owe?”

A cursory calculation suggests that, even before you add the VAT, based on the charges applied by AKM Law, more than £170 million of this money could end up in the well-endowed pockets of lawyers or complaints management companies.

Law firm v complaints management companies – how do their fees compare?

AKM Legal’s 40% fee is substantially higher than the cap imposed on complaints management companies (CMCs).

In March 2022, the FCA set a cap on the fees CMCs can charge. Unlike law firms, CMC charging operates on a sliding scale – 30% on the first £1,499 of compensation won, reducing to 15% on compensation above £50,000.

Source: FCA

These rules apply to the majority of claims where a customer is awarded compensation from a financial services firm, including from a firm, via the Financial Ombudsman Service (FOS) or if a firm has gone out of business, from the Financial Services Compensation Scheme (FSCS).

These rules do not apply to PPI claims, which are instead subject to a 20% cap, set by the government.

Crucially, CMCs must disclose key information to consumers before entering a contract, providing details about how fees will be calculated and ensuring that a customer understands free routes of redress that may be available.

Meanwhile, law firms are regulated by the Solicitors Regulation Authority (SRA), which does not currently mandate a cap for mis-selling compensation claims.

Regulatory manoeuvres could change the status quo

The good news is that the SRA is currently consulting on placing a cap on the amount solicitors can charge for handling financial mis-selling claims, bringing it closer to the sliding scale that CMCs must adhere to.

Although the proposal is in consultation until 21 June 2024, the SRA hope that their proposition will improve clarity and certainty for consumers and create consistent parameters throughout the legal sector to prevent overcharging.

Fair charging for bespoke, hands-on support

We are the first and only specialist consultancy focusing exclusively on helping advice firms manage client complaints, claims, and redress with bespoke, hands-on support when it’s needed most.

We provide comprehensive complaints defence for a fixed fee.

The initial consultation is free and without obligation. Following a Non-Disclosure Agreement (NDA), we’ll review the client file and assess how many hours the investigation will take and how long it will take to draft the “final response”.

We’ve designed this defined charging structure with clients front of mind, as we want you to feel entirely engaged and comfortable sharing all the necessary details as we undergo the investigation stage.

Moreover, it gives us the freedom to call you when we want to develop the strategy – without causing concern that we’re attempting to generate billable hours!

For help after a complaint has been referred to the FOS, we usually charge on an hourly basis.

Get in touch

If you’d like to find out more about our fees, or how we can help you resolve a complaint, we’d be delighted to answer your questions.

Please email mail@jencap.partners, book a short call by completing our online form, or call 029 2000 2325.