Taken from Policy Manual Part D: Professional Practice.
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:
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.
Issues that have been identified in this area of professional practice include advisers:
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.
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 The portion of the funds for which an invoice has been legitimately issued should then be withdrawn from the client account immediately.||Deposited into a practice account.|
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:|
When an adviser receives client funds paid in advance, they must:
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.
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.
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.
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:
Provided below is a sample client ledger:
|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|
Advisers must ensure that the client ledger reconciles with the client account.