Client Accounts 101 for Law Firms – Part 1

Written by The Clio Team

Client accounting. At first, the concept seems straightforward: Client money connected to an underlying legal service—whether it’s money for unearned fees (typically paid as a retainer), conveyancing, settlement funds, or the administration of estates—is not yours, so keep it in a separate account to avoid accidentally spending it. Simple, right?

In practice, client accounts can be quite complex. Lawyers are responsible for navigating the Solicitors Regulation Authority’s (SRA) rules pertaining to client money and accounts, plus a system of banks that may be unlearned of said rules. If your firm improperly handles client money—whether intentionally, accidentally, or through neglect—you and your firm could put your clients’ money in danger, face disciplinary action, and even risk being struck off.

This guide offers points to consider for client accounting at your law firm, so you can better protect your clients’ money—and your firm.

 

What is a client account?

What makes a client account different from an office or other account operated by you or your firm?

Basically, the SRA Accounts Rules outline that if you hold or receive client money, you’re required to keep one more client accounts at a bank or building society (of which the branch or head office is located in England and Wales).

A client account must not function as a banking facility (more on that later), and must make funds available as needed. Specifically, as SRA Accounts Rule 13.8 states, “Money held in a client account must be immediately available, even at the sacrifice of interest, unless the client otherwise instructs, or the circumstances clearly indicate otherwise.”

With this in mind, there are two types of client account that your firm could keep:

  1. A separate designated client account
    • Accounts for money related to a single client, other person, or trust
    • Includes in its title a reference to the identity of the client, other person, or trust
  2. A general client account
    • Accounts for money your practice holds for clients (i.e. but is not specifically designated to one specific client).

Opening a client account

When it comes to opening an account, you are obligated to follow essential instructions designated by SRA Account Rules 13.3.

In all instances, the name of the account must “include the word ‘client’ in full (an abbreviation is not acceptable)”. You must also consider the size and status of your firm when naming a client account:

  • Sole practitioners: Client accounts must be named under the name they are recognised by the SRA (whether that is the practitioner’s own name or the firm’s name)
  • Partnerships: Client accounts must be under the partnership’s name
  • Incorporated practices: Client accounts must be named in the company or LLP’s name (as registered at Companies House)
  • In-house solicitors or RELs: Client accounts must be in the name of the current principal solicitor/REL or solicitors/RELs
  • Trustees (where all the trustees of a trust are managers and/or employees of the same recognised body or licensed body): client accounts must be either in:
    • the name of the recognised body/licensed body or
    • in the name of the trustee(s)
  • Trustees (where all the trustees of a trust are the sole practitioner and/or his or her employees): client accounts must be either in:
    • the name under which the sole practitioner is recognised by the SRA or
    • in the name of the trustee(s)

And, if the account is a separate designated client account, then its title should also make reference to the identity of the client, other person, or trust.