“Personal financial challenges present firm level risks”
This was the proposition put forward at the Wealthbrite launch event for their new report, Financial Well-Being in Law 2025. Together with Nick Gallagher, CEO of The Solicitors’ Charity, I agreed.
Nick and I spoke about how “finance” and “risk” in the legal sector context don’t just relate to someone having their hands in client account. Rather, the risks can be much more pervasive but potentially just as damaging. Staff with financial worries might be over-inflating their time recording or their billing figures. They might be taking on too much work or work which is beyond their competence and capabilities.
We all recognise that challenges in our personal life can feed into our day-to-day practice. For your employees, that may have knock-on effect to the level of client service they offer and the quality of the work they are doing. Ultimately, all of these have an impact. They have an impact on the firm’s reputation, not just externally, with clients but also internally, amongst colleagues. And of course, they can have an impact on the firm’s bottom line, as dealing with the fallout from these issues – whether that’s complaints, negligence, or professional misconduct – will be time-consuming and expensive.
Wealthbrite’s mission is a simple one: to shine a light on how financial well-being works within the legal sector. Part of the way they deliver this is through training, partnering with law firms to give their employees a realistic understanding of core financial concepts and teaching people how to manage their money. At its heart, there is a social motivation behind this. Their research, as set out in the latest report, shows that financial knowledge and understanding can be particularly challenging for people from lower socio-economic backgrounds.
During the evening, we heard stories from people who were the first in their families to go to university. When they stepped into a job at a City firm, earning a very decent salary, they realised they had no, as one speaker put it, scaffolding to hold onto. They didn’t know how to manage their money or what they should be thinking about in terms of savings, pensions and investments. In some cases, this contributed to problematic spending habits or money management. More broadly, data shows that people in the legal profession are less capable compared to wider society at managing their finances. They exhibit higher rates of financial constraints, being less able to pay an unexpected bill, and more likely to rely on credit to get them through the month.
Building individual finances into firm risk management
So what can firms do about this? Well, I said that the key was to start having this conversation. To manage any type of risk, first you have to acknowledge that the risk is there. We need, therefore, to agree that personal financial well-being feeds into the overall risk management programme of the firm.
We spoke about the fact that this might not be something that many firms may want to confront. We’ve all heard it: I didn’t need any of this help when I was a junior, no one held my hand when I was going through this, I just had to get on with it. But, as I concluded, this doesn’t stack up. The fact is that (as with so many things) we now know better so we must do better.
In practical terms, dealing with these risks is just the same as how you would deal with any risks. It’s about creating an open and approachable culture, where people can put their hands up and say that they are struggling. It’s about acting proactively, scoping out what sort of tools you can offer, and implementing them. This could include, as Wealthbrite offers, education and awareness to staff about how they can manage their money effectively.
It can go further and think about formal procedures that the firm should have in place. Have you ever had an employee ask for an advance on wages? Most firms don’t have an established procedure to how to deal with this and who signs it off.
And finally, it’s about horizon scanning. It’s about monitoring and oversight (just like it is with AML risks, with competence risks, and all the rest).
How can you leverage your systems and your data to be able to spot where these risks may arise? Key to this is going to be your supervision system. It should look not just at the advice someone is offering or indeed whether they’ve completed their client and matter risk assessments, but more holistically at their performance, against metrics like time recorded, bills raised and time written off, and matters taken on. It should also look at service issues, whether that’s formal complaints or claims, or those low-level grumbles that a lawyer isn’t getting back to clients in a timely manner or that no progress seems to have been made. The signs of personal financial pressures impacting on an employee’s performance and conduct may well be there.
What does financial well-being have to do with solicitors’ ethics?
From here, the conversation on the night segued into whether individual financial well-being needs to be put on the ethical behaviour agenda. Again, Nick and I spoke with one voice: yes.
A few months ago, I spoke about how we need to change the conversation around ethical behaviour. It doesn’t exist in a vacuum and it is not as easy as saying that there is one right way and one wrong way. Rather, we need to acknowledge that sometimes identifying the ethical course of action can be tricky and, more than that, following it can be even trickier. This is the case when external pressures, whatever they may be, throw people off track. It’s not helpful simply to dismiss an example of questionable ethical behaviour as a single bad apple, rotten to the core. Rather, there should be an examination, and a reckoning, as to the situation that allowed that behaviour to emerge in the first place.
So where do we go next? Wealthbrite’s report has just been published and you can access it here. The content in it, particularly the statistics, make for a sobering read for managers of law firms, for people in the risk and compliance function, and for people in the HR function. But the message is clear: if you care about your staff, it’s time to consider how their financial health affects your firm’s future.
