Practice trends: keep the trust
Traditional wealth management work is changing in many ways, however with inexperienced providers eager to become involved, will the area suffer from lack of technical knowledge and experience, asks Jenny Ramage
In troubled economic times, private client lawyers remain valued advisers. Luckily, while private client work is not entirely recession proof, it appears to be more secure than some other areas of work. Graham Wood, a partner in capital tax planning at 22-partner firm Kuits LLP in Manchester, says that in a tough economic climate, being a private client lawyer has its advantages.
'I think people see us as a constant and at times like this they like to talk things through with someone who has been there a long time,' he says, adding,'private wealth management is better placed than other types of legal work as it is not generally transactional.'
Clients are, however, becoming more demanding, says Linda Cummins, joint head of three-partner firm Black Norman Solicitors in Liverpool, which set up a specialist private client department 12 months ago with a view to enlarging its client base.
'They are wary, too,' she says, 'due to the vulnerability we all feel as a result of the economic situation. You have to go that extra mile to gain their trust and confidence; offering clients as personal a service as possible is especially crucial right now.'
Keeping up with changes
Much more than any effect of the credit crunch on private client work is the impact of the government's recent, myriad changes to the rules governing wills and trusts.
'The government's tendency to make continuous changes to tax law has reduced opportunities in tax planning,' says David Bird, head of tax and estate planning at 26-partner firm Paris Smith in Southampton. 'It keeps changing the rules and has made them so complicated that in some cases, for example stamp duty land tax even the Revenue don't understand them.'
Much of his department's work is trusts related, and as the government has taken away many of the tax benefits of creating trusts, this has reduced the amount of trusts work coming through the firm's doors.
'It used to be possible to create trusts without any tax liability, now it's not possible in many cases,' he says. 'You can only put limited amounts in trusts without an upfront charge '“ the limit is £312,000. The cost of running a trust can mean this is uneconomic'. While this may have been a bit of a blow to some firms, 'in many ways it has been an opportunity, as trustees have had to revise the terms of trusts to get tax benefits'. Other trustees have decided to bring trusts to an end; this too involves work on the lawyer's part '“ although Bird says that when trusts are wrapped up, 'it does put an end to the regular income we would have got from trust administration work'.
Graham Wood feels that the new rules governing trusts have been introduced 'without any logical thread behind them,' he says. 'We've lurched from one Budget or Pre-budget Report to another without really knowing what steps the government is going to take.
'The dramatic changes to the tax rules in 2006,' Wood continues, 'strangely discouraged the use of trusts'. Instead, he says, his firm sees an emerging trend for setting up other, more complicated structures; for example, family limited partnerships, (whereby you give the economic advantage to the children but the voting power stays with the parents, meaning that children cannot release assets out of the partnership unless the parents agree).
Susan Midha, a private client partner at eight-partner firm Adams & Remers in Lewes, East Sussex, says her firm is also feeling the effect of the government's changes to the tax rules governing trusts. 'We've had to rethink very significantly the way we deal with clients' queries with regard to their estate planning. We've had to work out precisely what is of benefit to our clients and what we can offer'.
Midha has also noticed that since the pre-owned asset tax was introduced in 2005, her firm is spending large amounts of time clarifying things for clients, for example, the reasons why a trust that existed before March 2006 is treated quite differently from a trust made after that date.
'The system is labyrinthine now,' says Midha. 'It is incredibly complicated, and clients find that difficult'.
Arguably less complicated were the government's changes in 2007 to the rules governing wills, with the IHT nil-rate band now transferable between spouses. But while increased simplicity is a good thing from the client's point of view, as Graham Wood points out, firms do better when things are more complex and more technical knowledge is required.
Changes to powers of attorney have also had an impact on private client work, according to David Bird. 'The old Enduring Powers of Attorney were relatively simple, but Lasting Powers of Attorney are 26-page documents and are much more complicated,' he says. 'They are also at least four times as expensive. You'd think this would be good for us, but in fact we are doing a lot less than a quarter of what we were doing before as cost is putting people off.'
The good news, according to Bird, is that a change of law always presents an opportunity 'as it produces a reason to write to a client to keep in contact or suggest things they can do to benefit from tax reliefs'.
Besides, demand in other areas is increasing, such as long term care for elderly people, and the NHS funding thereof. 'Before, people were trying to reduce IHT, now they are trying to reduce the impact of the cost of nursing care on their estates, and are putting in place structures to fund it,' says Bird.
'People are coming in and asking about it all the time now.'
In the face of such complication, clients are showing a tendency for wanting to keep things as simple as possible. 'Safety and protecting what they've got is what clients are interested in at the moment, and that's what we are concentrating on,' says Midha.
Further afield
Do the UK trends in wealth management reflect the trends in the wider world? Peter Montegriffo, a partner at international law firm Hassans in Gibraltar, says the general caution in the market translates to 'structures that are simpler and more tried and tested than exotic'. People are putting more of a value on stable arrangements that are well rehearsed and well established, he says, and are 'less disposed to pushing at the edges and taking risks'.
With the world presenting an increasingly transparent and open environment, especially in the context of the European Union, Montegriffo says that 'most reputable clients want arrangements that stand the test of daylight, are fully investigable and disclosable and within parameters that are well established. The better regulated centres are therefore tending to provide these.
'In today's climate in particular there is likely to be a move to eradicate centres that don't play to first-class regulatory requirements'. The less well-established jurisdictions are therefore less likely to find favour, he says.
The focus, both internationally and at home, is clearly on wealth preservation. 'There is strong demand for products that are not necessarily exciting in terms of return, but that guarantee protection,' says Montegriffo. 'There is no appetite for aggressive or unorthodox funds. Most investors will take some persuasion to get back in to equity and property investment in the short term. We are going to see succession planning and wealth preservation being much more in vogue than very aggressive tax or investment strategies'.
The dangers of dabbling
Back on home turf, David Bird thinks that the secret to keeping clients happy is to provide as broad a service as possible. It is not difficult to see the sense behind this, for those with expertise in the field. However, with many high street practices seeing a downturn in conveyancing work, many such firms are trying to get in on the act, offering wills and trusts advice to clients to make up for the shortfall in property transactions. The feeling of the more established private client firms is that 'dabbling' in this area could lead to trouble.
Graham Wood thinks that the fact people 'who don't know what they are doing' are trying to get involved in this work ought to be a concern to clients. 'Firms '“ particularly conveyancing firms '“ are now trying to do estate planning and probate work without really having the skills.
'It is interesting,' he says, 'how many matters we've picked up from other firms where clients have become increasingly annoyed with the lack of expertise, with it taking much longer for the work to be processed, and the clients not confident that the work is being done correctly.
'Wills may be simpler now,' says Wood, 'but you've still got to understand the law and the taxation consequences. People shouldn't dabble in these complicated areas '“ they should be immersed in them.'
Wood says that while he understands why some high street conveyancing firms might want to broaden their offering, 'they ought to think harder about what they are doing. One of the key principles is that you shouldn't undertake work that you can't handle properly, and firms are definitely doing this'.
This is clearly something that private client lawyers across the board feel strongly about. Susan Midha is forthcoming with her thoughts on the issue: 'If conveyancers have been sitting back and not seeing where conveyancing has been going over the past 10 years, they are not necessarily going to have the dynamism to get themselves really upfront when it comes to private client work,' she says.
Linda Cummins of three-partner firm Black Norman expresses concern about the lack of adequate regulation and insurance for inexperienced persons getting involved in will writing and probate work. 'It is not a question of solicitors maintaining a monopoly on such services, but rather a question of clients' best interests, care and accountability. If there is a widening in the field of potential probate practitioners there may well be a problem because of their lack of practical experience over many years and the fact that they cannot gain the knowledge required in a relatively modest training environment.'
At the other end of the spectrum of firms doing private client work, the feeling is much the same. Partner Peter Nellist at top 50 firm Clarke Willmott is also worried that traditional private client work is at risk. 'Don't tell me that the likes of Tesco aren't planning to move into this in a big way,' he says, adding, 'you can't do this job part-time. You've got to do it full-time and to the highest standard, or don't do it at all.' Those who fail to heed this advice, he warns, are going to see a rise in claims against them, and increased insurance premiums.
One might conclude that the fundamental value of traditional private client lawyers is in their mix of technical expertise and deep understanding of individual clients' needs, built up over the course a longstanding relationship. In sacrificing these traditions, will we be pushing integrity out of the door, and inviting trouble in?