Third-Party Managed Accounts (TPMAs) have emerged as a transformative solution for law firms, particularly in the management of legal fees on account. Designed to address the challenges associated with traditional client accounts, Third-Party Managed Accounts offer enhanced compliance, improved security, and operational efficiency.
For legal practices navigating the complexities of modern regulation, Third-Party Managed Accounts represent an innovative and pragmatic alternative to holding client money directly.
There are two types of Third-Party Managed Accounts for law firms:
The landscape continues to evolve, with increased scrutiny on how firms manage client money. Traditional client accounts carry inherent risks, including regulatory breaches, human error, and exposure to cyber fraud.
By adopting Third-Party Managed Accounts for fees, firms can address these vulnerabilities directly. TPMAs operate in full alignment with Rule 11 of the SRA Accounts Rules, allowing firms to handle fees without being burdened by the requirements associated with holding client money.
Additionally, TPMA providers are regulated by the Financial Conduct Authority (FCA), ensuring robust AML (Anti-Money Laundering) systems and safeguarding of client money. We, for example, safeguard all client money at the Bank of England.
Using TPMAs also eliminates the need to contribute to the SRA Compensation Fund for monies held within the account - a useful bonus!
Traditional client accounts expose firms to significant operational and reputational threats. TPMAs mitigate these threats by removing direct responsibility for the holding of client money.
Funds held by payment service providers benefit from advanced security measures, reducing the threat of cybercrime, phishing attacks, and misappropriation.
Furthermore, with provider handling client money, the chance of accidental breaches of SRA regulations is significantly reduced. Agreed processes minimise human error in handling client money, ensuring accuracy and accountability, which further bolsters trust and reliability from the firm's perspective.
Managing client accounts can be time-consuming and resource-intensive. TPMAs streamline these arrangements, enabling law firms to focus on their core function: providing high-quality legal advice.
From onboarding to ongoing transactions, TPMAs integrate KYC (Know Your Customer) and AML/CTF checks, payment settlement, and reporting into a single, efficient platform.
Comprehensive statements and real-time updates provide law firms and clients with full visibility of transactions, while the reduction in administrative burdens allows firms to allocate resources more effectively and eliminate the hidden costs of managing client accounts.
The motivations behind using a Third-Party Managed Account for fees on account will vary according to the risk profile of the client, the matter, the size and scope of the fee and the firm's own risk appetite.
For smaller matters, with the more vanilla of clients, a security Third-Party Managed Account will usually suffice. For these accounts, if one envisages a £250,000 anticipated fee over 10 months, the firm might ask for three months' worth of fees (£75,000) to be placed on account before the matter gets underway.
This gives the firm confidence that the work can be started, the team resourced and progress can be made on the matter in earnest without the threat of non-payment.
Each month, the firm can send an invoice for their fees, and each month they are paid directly (not using the account). At the end of the matter, the client can elect to use the account to pay down the final few months of fees to the firm.
Pay-through Third-Party Managed Accounts are slightly different. They are more suitable for offshore clients, trusts, or those who may have a record of slow payment - for pay-through accounts, they are established in a similar way (with the deposit of an agreed baseline balance - possibly even the whole fee), and then each month the invoice is paid from the TPMA to the law firm directly, and the client must top up the account within an agreed period - by the end of the matter, all of the funds will have passed through the TPMA.
One of the primary advantages of using a Third-Party Managed Account for legal fees on account is the enhanced security it provides. Traditional client accounts are increasingly vulnerable to cyber threats, human error, and regulatory scrutiny - all of which are risks incumbent on the firm.
TPMAs address these concerns through robust safeguarding measures. Funds held in a TPMA are kept entirely separate from the law firm’s own accounts (and, indeed, from the provider's accounts), ensuring clarity and reducing the chances of mismanagement.
FCA-regulated payment institutions implement state-of-the-art cybersecurity protocols, including encryption, multi-factor authentication, and fraud monitoring, while comprehensive transaction logs and regular statements provide a transparent and verifiable record of all activity.
By using a TPMA, firms can offer their clients this added peace of mind. Clients receive real-time updates on the status of their funds, and this can be done in a co-branded environment - with your firm's livery used to reinforce the experience.
As funds are managed by a specialist, regulated payment service provider, clients can rest assured that their money is being handled in line with strict regulatory standards.
The drawdown process for legal fees held by payment service providers is both efficient and transparent. Firms retain control over the authorisation of payments so that funds are disbursed in accordance with their agreements with clients. Before any funds are drawn down, clients must authorise the release of payments - generally, this will be agreed as part of your firm's client care letter (in much the same way as fees on account are presently handled).
This step satisfies the SRA requirement to keep clients fully informed and in control of their funds. Fee earners maintain oversight of the payment arrangements, approving transactions through the TPMA platform as required. Once approved, payments are processed automatically, ensuring speed and accuracy. Detailed statements provide a clear record of all transactions, making it easy to reconcile accounts and track activity.
Clients may have questions about the drawdown process, particularly if they are unfamiliar with TPMAs. Law firms should provide clear explanations of how the TPMA operates, including the safeguards in place to protect their funds, and we are able to assist you in providing the information clearly and concisely.
The compliance for the TPMA is largely complete by the time it is opened. While we are required to carry out ongoing transaction monitoring, there is very little burden for us if you agree with the client to increase the amount of fees held. The client can then top up the TPMA to the agreed level at any time.
The introduction of the revised SRA Accounts Rules has brought TPMAs to the forefront as a viable alternative to traditional client accounts. Rule 11 explicitly permits the use of TPMAs, provided specific conditions are met.
Law firms must ensure:
Engagement terms must outline who is responsible for TPMA fees, typically treated as a disbursement payable by the client, and the client’s rights to dispute payments or terminate the agreement.
Regular statements must be obtained from the TPMA provider to maintain oversight of all transactions, and accurate records must be kept to satisfy the relevant requirements - our platform enables fee earners to self-serve this information at any time.
By adhering to these requirements, law firms can leverage TPMAs to manage legal fees on account without compromising on regulatory obligations.
Our service represents a secure, efficient, and compliant solution for managing legal fees on account. By leveraging the benefits of TPMAs, law firms can reduce risks, enhance client trust, and streamline their operations. With robust regulatory oversight, advanced security features, and transparent processes, TPMAs enable law firms to focus on delivering exceptional legal advice without the administrative burdens of managing client accounts.
For law firms seeking to modernise their approach to financial management, TPMAs offer a compelling and practical choice. To experience the benefits firsthand, consider trialling a TPMA for your next matter requiring legal fees on account- we'll be happy to work with you on a proof of concept with a live client - this trial will demonstrate how TPMAs can transform the way your firm handles client funds, delivering security, compliance, and efficiency.
dospay is a trading name of DOS & Co. Ltd, a company registered in England and Wales with company number 08294966.
DOS & Co. Ltd. is registered with the Financial Conduct Authority under the Payment Services Regulations 2017 (FRN: 833374) for the provision of payment services.
All of our escrow and third-party managed accounts are segregated and safeguarded at the Bank of England.
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