The importance of commercial awareness for private client lawyers

Answer

It’s inevitable that at some point during the process to apply for a position as a trainee or apprentice, there will be some sort of question about commercial awareness. It can often be more ‘obvious’ to discuss commercial awareness for businesses, however how does it apply to private client work? There are various elements to 'commercial awareness', for example:

1. understanding business/economic trends that affect the markets in which your clients operate; and
2. understanding the factors that affect the profitability and success of your firm (which is itself a business).

How do business/economic trends affect the work you undertake for private clients?

Economic and business trends affect private clients just as they affect business clients. Quite often our private clients will have their own businesses or investments, therefore there’s a direct link between the effect on businesses and their personal situation.

Below are four examples of business and economic trends, together with an explanation as to how a private client may be affected and how this may influence the service that you provide to them.

Cost-of-living crisis

Private clients may be homeowners, tenants or business owners and the cost-of-living crisis will have an affect (positive or negative) on an individual, just as it affects any company or business. It’s important to provide your advice with this in mind. For example, as part of financial proceedings on divorce, parties are required to estimate their future income needs. As their solicitor, you should be aware of general factors that could have a bearing on your client's future income needs, such as whether:

• mortgage rates are high;
• rental prices are high; and
• the cost of utilities continues to rise.

Tax cuts and rises

A large majority of private client-related work involves an aspect of buying/inheriting and disposing of/gifting assets, which are transactions that have tax consequences. Solicitors should be aware of the relevant tax regimes and pending or anticipated changes to rates, reliefs or exemptions. This is important as the tax consequences may influence how a transaction is structured.

For example, capital gains tax will be relevant to clients who own property or shares in a company and inheritance tax will be relevant to clients creating a trust.

By way of specific example, there was a recent change in the law around the capital gains tax treatment of the marital home on separation. As a private client lawyer, it’s essential to be aware of such changes so that you can propose the best options to your client while ensuring that you’re fully aware of the current law and the impact that will have.

Technological advancements

Solicitors must be aware of technological advancements and how such advancements can influence the way private client (and other) work is conducted. From a litigation perspective, a good example is how use of social media such as Facebook and WhatsApp can increase the volume of data that’s potentially disclosable in a dispute. It’s therefore useful for a solicitor to have a general awareness of new and emerging platforms that may contain data their client 

is obliged to disclose in proceedings. Threads is an example of a platform created very recently, in 2023.

Geo-political tensions

In the UK, we have a designated person financial sanction regime, which consists of a number of individuals against whom the UK has imposed financial sanctions. Firms that undertake work with links to countries subject to sanctions could come across an individual who’s subject to the regime. It’s important that solicitors in these firms are alive to this possibility, as well as to pending or anticipated changes to the sanctions regime. This is because they’ll be required to comply with their firm's risk policy to ensure they’re not dealing with an individual, or their business interests, subject to sanctions. The high-profile Russia and Ukraine war has highlighted how the position can constantly change and so it's important to be aware of the latest position. It’s more likely to apply to private client solicitors working in firms that provide services to high-net-worth individuals.

In summary, it’s crucial to be aware of the circumstances (personal, commercial and economic) in which your clients find themselves in order to tailor your advice accordingly. There are many trends that can affect private clients and the advice you give/service you provide to them.

It’s also important that your firm can react to these changes internally in the way it conducts its processes. It’s for every employee to have an awareness of relevant changes in economic and business trends to best streamline their services for maximum profitability and success.

Milli Clark and Megan Davies are trainee solicitors at Michelmores LLP.