I read this article in the FT aghast.
The cost of legal opinion is not exclusive to those who pay the £1,000 per hour legal bills ($2,000 an hour for some US firms “over here”). The cost trickles down to the consumer who gets its diluted impact in the price of goods and services it buys.
We are entitled to ask whether the increased cost of legal fees is linked to a commensurate increase in value or whether it is simply unwarranted profit extraction from a sector that has the long arm of the law on its side.
The reasons given by the PWC survey on which the FT article is written do not suggest that increased costs are benefiting many other than those in the legal sector. The argument for price inflation is principally down to wage inflation
- Top American law firms break into the London market by offering huge salaries
- UK firms put up salaries (£150,000 for a first year qualified lawyer)
- Salary increases generally 20% last year
- Hourly rates increase by 40%
There are a few other things quoted (cost of cyber security), initial costs of employing AI and general increases in the cost of living. However, even the FT has to call-out the wage spiral.
It goes without saying that where the magic circle leads, others follow and while not all newly qualifieds are getting £150,000, this is where the bar is set.
It is time for the Law Society to look at this and if it doesn’t then the CMA should be called in.
We are not getting 20% better service from junior lawyers and should not be paying 40% higher bills than we were 5 years ago.
But we are meeting the bills, through the cost of goods and services to which ultimately these bills are passed on.
Where do you think slices of the £50bn bulk transfer money goes!?
Putting aside the foolishness of the en-masse transfer of value away from Scheme members, the main brake (if any) on a buy out is actuarial and legal capacity.
I was struck by the cost to the sponsors of the PLSA Conference last week and also the indication of the thousands of people employed in the “pensions industry” only a small proportion of whom were present. I became very uncomfortable when I realised that all this was effectively being paid for out of the pension savings of the British population either directly or by their employer.
Further I realised that the regulatory bodies were being encouraged and instrumental in promoting the industry with little real value to the individual. We can of course point to the rogue financial advisor, trustee, or the underperforming fund; but does forcing high cost bureaucracy on everyone really solve the problem? Who benefits from the £30 per year per member that it costs to produce and publish an Implementation Statement, for example?
The introduction of private equity into what is essentially a service provided by an individual is certainly adding to the cost of that service/advice, let alone increasing the seemingly unchecked temptation to “sell on”.
My New Year resolution is to challenge all administration costs and to focus advice only on areas where there is clear uncertainty about the effect on benefits from alternative courses of action. Where we do have to engage advisors we will regularly reconsider appointments individually and seek alternative proposals/quotations to consider the value offered to Members.
Yes, agreed totally. I declined a recent end-of summer networking event when I found out that of the 40 invitees only 2 were member or employer nominated Trustees, with the majority being partner / director level IPTs or consultants. 1:20 is not a good pay-back ratio!
Same at a recent end-game conference, of 150 attendees only around 9 were actual (non-professional) Trustees.
The IPTs are of course another creation from the happles TPR foisted upon the schemes (this was explained to me as the way forward some 15-18 years ago by a TPR founder, as pesky member centric Trustees didn’t always do what they were told to do by TPR)
It is abundantly clear that the industry views the £1.5trn as a feeding trough, into which they are all defining new ways to get their ‘market share’, as they refer to it.
I’m not sure I’d call TPR hapless. Nice, superannuated work (for them) if you can get it.
And surrounded at times it seems to me by sycophantic professionals who seem to know all the ways and means to hike fees.
I’m reminded of a 2020 paper by Deborah Mabbett, Professor of Public Policy in the Department of Politics at Birkbeck, University of London.
In “Reckless prudence: financialisation in UK pension scheme governance after the crisis”, Professor Mabbett suggests “that derisking in the UK is more
endemic than in other comparable pension systems. At first sight, it is surprising
that a system with no quantitative rules and substantial elements of trustee and actuarial discretion has produced this bias towards precautionary behaviour. While
[she] cannot offer a systematic comparison, notable features of the UK case include the weak representation of member interests in scheme governance, along
with an assumption that employers [and/or their professional advisers] who favour ‘rewarded risk’ investment strategies
are exhibiting moral hazard. The structure of governance is such that those who
have a clear interest in outcomes are sidelined, and technical calculations are
relied upon.”
For the uninitiated, “moral hazard” is an economic term that describes a situation where a parties [eg pensions professionals, regulators] take on more risk [aka ironically as de-risking] because they don’t face the full consequences of their actions.
This can happen when one party has more information than another, or when one party doesn’t have to bear the costs of their actions or recommendations or regulations.
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