Managing your client risks in difficult times Peter Scott PETER SCOTT CONSULTING

Professional Firm Risks People Operational Regulatory IT Competition /business Economic, political, fiscal Financial Asset Reputation Management

PETER SCOTT CONSULTING Client risks Financial Regulatory risks Liability to clients Reputation

PETER SCOTT CONSULTING Your risk management team? Who has a risk / compliance manager? Can you afford not to have risk / compliance professionals?

PETER SCOTT CONSULTING Financial risks How much is your unsecured investment in your clients?

PETER SCOTT CONSULTING InstructionsW.I.P CashDebtors Work payment billing Managing your client financial risks is a process

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 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?

PETER SCOTT CONSULTING 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?

PETER SCOTT CONSULTING Your finance team? Who is in your finance team? Is the team performing? What should they be managing? Could they be improved?

PETER SCOTT CONSULTING Regulatory risks Invest in effective compliance: Money laundering regulations Solicitors Accounts Rules SRA / FSA regulation Complaints Invest in training

PETER SCOTT CONSULTING Managing client liability risks Best practice Engagement letters Insurance cover If an LLP – then operate as an LLP

Operational compliance is key to successful use of an LLP

PETER SCOTT CONSULTING 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?

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 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)

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING 3. Insurance implications Who needs to be insured? ‘D & O’ type policies Who pays? Level of cover? Obligations in members’ agreement Lifeboat policies

PETER SCOTT CONSULTING 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 s / faxes

PETER SCOTT CONSULTING Day to day operations – on going What should we call ourselves? Members? Partners? Principals? Directors?

PETER SCOTT CONSULTING Signing correspondence “for XYZ LLP” NEVER sign in your own name

PETER SCOTT CONSULTING Protecting your reputation from client risks “Regard your good name as the richest jewel you can possibly be possessed of” Socrates

PETER SCOTT CONSULTING Professional Firm Risks People Operational Regulatory IT Competition /business Economic, political, fiscal Financial Asset Reputation Management

PETER SCOTT CONSULTING 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

PETER SCOTT CONSULTING Any questions?