Here at Cooper Parry, we work closely with professional services clients, including law firms and solicitors. We understand that managing client account interest isn’t just about ticking compliance boxes – it’s about building trust, maintaining transparency, and showing clients they’re in safe hands.
But let’s be honest, with regulations and expectations constantly evolving, this area can feel like a bit of a minefield. That’s why we’re here to help. In this guide, we’ll break down the essentials, share practical tips, and offer best practices to help law firms navigate client account interest management like pros – all with a little less stress and a lot more confidence.
WHY DOES CLIENT ACCOUNT INTEREST MANAGEMENT MATTER?
When clients hand over funds, they expect them to be handled responsibly. Making sure they receive fair interest doesn’t just fulfil legal obligations – it demonstrates transparency and builds trust. When clients know you’re looking out for them, strengthening relationships, which is invaluable for long-term loyalty.
GETTING TO GRIPS WITH COMPLIANCE, THE REGULATORY ESSENTIALS
The Solicitors Regulation Authority (SRA) has clear guidelines: law firms must keep client funds separate in designated accounts and ensure that any interest is calculated and allocated appropriately. Falling short of these standards risks hefty fines and can harm the firm’s reputation. So, a strong, compliant process is crucial.
POLICIES: CLEAR, CONSISTENT, AND COMPLIANT
Creating a consistent policy for managing client account interest is key to keeping everyone on the same page. It should clearly outline how interest is calculated, set out when clients are eligible (based on how long funds are held), and account for any changes in interest rates along the way.
But this isn’t just about ticking compliance boxes, it’s about building a process that’s smooth, fair, and transparent, giving clients the confidence that their money is in safe hands.
KEY CHALLENGES IN MANAGING CLIENT ACCOUNT INTEREST
Here are some of the hurdles law firms face – and how to navigate them effectively.
Interest Rate Swings and Market Fluctuations
Interest rates fluctuate, often significantly. Staying up to date with these changes is key to avoiding miscalculations and ensuring clients get the right amount. Outdated rates can lead to disappointed clients or worse, regulatory issues.
The Complexity of Administration
Using manual methods or outdated systems to calculate interest can lead to errors and inefficiency. Automated interest calculation software streamlines this, cutting down the administrative burden, reducing risk, and freeing up valuable time.
Non-Standard Client Cases
Unique cases, like complex estates or extended litigation, often come with their own financial nuances. Having a flexible approach for these situations – tailored to each case’s requirements – ensures fair and accurate interest allocation.
Interest Allocation
There are commercial aspects to consider as well. The 2011 Solicitors Rules makes clear that each firm must have an interest policy. It shouldn’t disadvantage clients. The key thing to consider is what rate of interest would a client have received if the money was in their own bank account.
Following an update to the rules in 2019 that advice still stands. There’s no specific rule on this aspect. As long as your firm has an interest policy, and you’re adhering to it, you’re technically correct and not in breach. Firms can have a minimum limit ie. if interest below £X is earnt, you don’t have to pay it over at all. The most common limit is £50 – there’s no rule on having a higher limit, albeit anything above £50 is considered to be a fairly reasonable amount of interest earnt so should really be paid over.
Reviewing market rates regularly and updating the interest policy in line with this means firms can evidence why they have given that rate. If an internal rate has been applied and isn’t regularly reviewed, the client may argue it if it is significantly below market.
BEST PRACTICES TO OPTIMISE CLIENT ACCOUNT INTEREST MANAGEMENT
By following these best practices, law firms can streamline interest management, strengthen client relationships, and mitigate risk.
Standardise Policies and Keep Teams Informed
A clear, consistent policy makes everything simpler. Regular training on these policies helps staff manage client expectations, stay compliant, and provide a consistent client experience.
Embrace Technology
Automated systems offer a clear edge, with tools that:
- Reduce errors from manual calculation,
- Sync with real-time interest rates, and
- Make regulatory reporting simple.
An automated workflow lets firms focus less on admin and more on service.
Regularly Review Rates and Policies
Staying up-to-date with market rates and regulations is critical. Quarterly reviews help firms keep their policies current, compliant, and aligned with the latest standards.
Be Transparent with Clients
When clients know how interest on their funds is handled, it builds trust. Make it easy for clients to understand:
- How and when interest is calculated,
- The conditions affecting interest, and
- How exceptions are managed for unique cases.
Transparent processes reassure clients that their funds are well-managed, and that your firm is prioritising their interests.
ETHICAL CONSIDERATIONS: TRUST THROUGH RESPONSIBILITY
Handling client funds comes with ethical responsibilities. A few key practices help law firms protect their reputation and strengthen client trust:
- Avoid conflicts of interest by managing funds impartially,
- Reduce risks by following a strong compliance framework, and
- Conduct regular audits to catch any issues early.
STRENGTHEN CLIENT RELATIONSHIPS WITH PROACTIVE INTEREST MANAGEMENT
Managing client account interest well is about more than regulatory compliance; it’s about using best practices to protect client funds and build trust.
By focusing on compliance, harnessing the power of technology, and fostering transparency, your firm can streamline their operations and strengthen client relationships – keeping clients satisfied and secure, no matter how the landscape changes.
Want to make sure your approach is spot on? Get in touch with us – we’d love to help you navigate the complexities and find the right solutions for your firm.
