Managing client funds

Understanding what money is client funds, and how to deal with it properly is an essential professional obligation. The consequences of not complying with the requirements of the code of conduct in this regard may potentially lead to severe consequences.

If an adviser never receives fees or disbursements in advance of the work being performed, they do not receive client funds paid in advance, and do not need to have a separate client account.

If an adviser receives fees or disbursements in advance of the work being performed, they must establish a separate client account, noting the following:

• A separate client account is a bank account established solely for holding client funds paid in advance.
• The client account must be separate from any other practice account run by the adviser and be easily identifiable as a client account.
• The client account may either be a separate account or a separate suffix under the adviser’s practice account.
• More than one client account is not needed.

The Immigration Advisers Complaints and Disciplinary Tribunal has expressed the view that client funds are held on trust, and an adviser in this situation is seen as a trustee. If a trustee takes property they know to be trust property, and use it as their own, they will be regarded as having dealt with the money dishonestly. That will be so even if they account for the money and repay it.

Any requirement for a client to pay in advance of work being performed must be in the written agreement. However, it is not correct to invoice for money taken in advance. Rather, money taken in advance must be invoiced once the work has been performed and the money is payable.

Client accounts should not be used to hold money simply for the purpose of service fee refunds or to earn interest. Money should be transferred out of the client account when it is due to be paid to you.

Differences between client funds, mixed funds and practice funds

The following table sets out the definitions of the different types of funds that may be received from clients, and the different bank account requirements that are attached to each of these:

Differences	Client funds	Mixed funds	Practice funds
Definition	Funds received for fees in advance of work being undertaken and client being invoiced; and all money received for disbursements not yet paid.	Funds that include both client funds, and also disbursements paid and/or fees incurred which have been invoiced to the client.	Funds that the adviser is legally entitled to and for which the adviser has issued the client with an invoice.
Bank Account Requirements	Must be held in a separate client account.	Must all be deposited into the client account at the outset. The portion of the funds for which an invoice has been legitimately issued should then be withdrawn from the client account immediately.	Deposited into a practice account.

Code of conduct requirements

The following clauses of the code of conduct must be taken into account when dealing with client funds.

In relation to client funds an adviser must:
establish and maintain a separate client bank account for holding all client funds paid in advance for fees and/or disbursements	4a
withdraw funds held on behalf of the client only when payments for fees and/or disbursements fall due	4b
use funds held on behalf of the client only for the purpose for which they were paid to the adviser	4c
provide any refunds payable upon completing to ceasing a contract for services	3d
maintain complete client records that track all transactions for a period of seven years and making those records available for inspection on request by the Authority	3e

When an adviser receives client funds paid in advance, they must:

• deposit the client funds paid in advance into the separate client account
• not withdraw client funds paid in advance until the fees and/or disbursement are payable and invoiced, and
• track all transactions for the separate client account in a client ledger, a sample of which is provided below.

If an adviser receives mixed payment from clients, i.e. payments in advance and payments for services already supplied, these mixed funds must all be deposited into the client account at the outset. The portion of the funds for which an invoice has been issued should then be withdrawn from the client account immediately.

If there are no client funds received in advance (i.e. if the payment is for fees for which an invoice has been issued) those funds may be deposited directly into the practice account.

Bank fees and other unanticipated charges

The Authority does not outline specific requirements regarding advisers maintaining a nominal amount in their client accounts to cover bank fees or other unanticipated charges. Advisers must, however, cover bank fees and other unanticipated charges from their practice funds.

Requirements for offshore advisers

Advisers working offshore must comply with the code of conduct requirements in relation to the client account. If an offshore adviser cannot operate a separate client account, he or she may not receive payments in advance for disbursements or services.

Record keeping

The Authority does not outline specific requirements on how an adviser must demonstrate professional business practices relating to all finances.

However it is recommended that advisers undertake the following actions to establish a clear audit trail for the flow of funds:

• keep a client ledger recording the transaction date, the name of the client, a description of the transaction, the invoice reference number, the transaction amount, and the type of transaction (i.e. deposit/credit or withdrawal/debit)
• enter cash and bank transactions in the client ledger at least on a weekly basis
• provide bank statements for the separate client account
• ensure that the entries on the bank statements reconcile with those on the client ledger on a monthly basis
• document any discrepancies.
  

Sample client ledger and reconciliation with client account

Provided below is a sample client ledger:

Date	Description	Reference	Invoice	Credit	Debit
01/01/2013	Advance payment from John Smith to cover disbursements and professional fees	John Smith- File JS1234		$4700
10/01/2013	Disbursement: Medical examination- John Smith	John Smith- File JS1234	50		$300
14/01/2013	Disbursement: Translation services- John Smith	John Smith- File JS1234	51		$250
17/01/2013	Disbursement: Visa application charge	John Smith- File JS1234	52		$3000
17/01/2013	Transfer to practice account: Professional fees- John Smith	Internal Transfer- File JS1234	53		$1150
31/01/2013				$4700	$4700

Advisers must ensure that the client ledger reconciles with the client account.