(Note the term ‘non-legally qualified supplier’ is used as lawyers have the training, skills and qualifications and are best suited to prepare legal documents.)

When and why did Non-Qualified Suppliers emerge

Non-Qualified Suppliers first emerged with the rise of "shelf-company" providers who could offer new company documents on a more time-efficient and cheaper basis. Prior to the advent of shelf companies, law firms were the predominant suppliers of Legal Documents.

In support of this practice, shelf-company suppliers asserted that incorporating companies, placing them on the shelf, and then subsequently transferring shares and changing directors merely involved corporate secretarial functions, not legal services.

Broadly, legal services include preparing documentation that creates or regulates rights between parties. Legal services for a fee should only be provided by a registered legal practitioner in the relevant jurisdiction and lawyers are subject to regulatory supervision, must abide by strict professional and ethical rules and must have at least a minimum professional indemnity insurance (PI Insurance) cover.

Technological advancements in how companies can be registered have significantly reduced the relevance of the shelf-company concept in today's market. However, as a consequence of this change, the process of establishing a company today arguably presents greater risks in relation to the provision of company documents constituting the provision of legal services. In broad terms, this is because registering and supplying company documents directly affects directors’ and shareholders’ legal rights.

Despite this, the supply of Legal Documents by Non-Qualified Suppliers has expanded significantly beyond the provision of new company documentation over time. In broad terms, this development has coincided with the rise of technological automation with documents being produced with less reliance on human input. Although the range of Legal Documents available has increased, many suppliers of Legal Documents today remain Non-Qualified Suppliers.

While Non-Qualified Suppliers may be popular, there are many issues to consider when using a Non-Qualified Supplier compared to a law firm.

Price

On the face of it, one apparent advantage of using a Non-Qualified Supplier is that their Legal Documents may be (or may be perceived to be) cheaper than Legal Documents provided by a law firm.

However, the old adage ‘you get what you pay for’ applies here — as cheap is not synonymous with quality or good value, especially if you appreciate the importance of a quality and service.

It is important to note that when using a Non-Qualified Supplier, you are not dealing directly with a law firm. Some Non-Qualified Suppliers claim their documents have been legally reviewed or licensed from a law firm, but this does not offer the same level of protection or ongoing support you would get from a law firm. Thus, the user is not protected in the same way if they were to deal directly with a lawyer. As discussed above, lawyers are compelled to maintain PI Insurance. PI Insurance is designed to protect clients who use law firm services and who suffer damages. PI Insurance is very expensive to maintain and many consumers of Non-Qualified Suppliers do not factor this into their value proposition when using a Non-Qualified Supplier.

Further, by using a law firm, you establish an ongoing relationship with a firm that hopefully you can obtain ongoing support and service from, especially if you need advice or need to tailor a document or strategy to suit a particular client situation.

Quality

Most suppliers claim and market their documents are of a high quality or the best available.

To assess quality in relation to a legal document such as an SMSF deed is not an easy task unless you are willing to spend the time to carefully read the document and you also happen to have the legal and technical skills to determine what you should be looking for.

If you do not have these skills, then we recommended you engage a suitably qualified person to do so, such as a lawyer or other expert with the relevant skills and expertise. However, the cost of undertaking this exercise may likely make the choice of using a law more attractive than using a Non-Qualified-Supplier.

Indeed, lawyers are qualified and have training to prepare and draft documents and to provide ongoing support and advice including tailoring a document to suit a client’s particular circumstances. For example, when updating an SMSF deed, there are many legal technicalities that often arise that can result in the variation being ineffective.

Moreover, a quality document may only be developed over many years of experience dealing with many practical and client issues. For example, DBA Lawyers regularly draft and tailor a range of documents, advise clients on complex issues and have an ongoing commitment to continual improvement of their documents and technical skills. Our experience advising clients on a regular basis is implemented when preparing our legal documents.

We also regularly review documents prepared by Non-Qualified Suppliers and regularly come across issues requiring significant rectification work or involvement by a lawyer is required to resolve the issue.

A risk we find with some SMSF deeds is that they provide a range of options to deal with death benefits in addition to a binding death benefit nomination (BDBN) that may include, a death benefit agreement, an SMSF Will and possibly other options. Providing so many options places the adviser at significant risk as a choice is needed on which document should be used especially as each of these documents come with complexities and risks. Moreover, since these documents are likely to affect a person’s legal rights, they are likely to involve legal work. There is High Court authority supporting a non-lapsing BDBN (refer to Hill v Zuda Pty Ltd [2022] HCA 21) but some of the other documents do not have case law authority on point involving SMSFs.

In contrast to obtaining Legal Documents from a Non-Qualified Supplier, an adviser dealing with a law firm can instruct a lawyer to prepare an SMSF deed and a BDBN, etc, and has the comfort of knowing they are using a supplier that is qualified and has PI Insurance if anything goes astray. This provides substantial protection to an adviser ordering from a law firm on behalf of a client compared to an adviser licensing documents from a Non-Qualified Supplier and tailoring those documents for the client’s use.

Value proposition – with legal review

Some Non-Qualified-Suppliers who licence documents also offer, for an additional fee, a Limited Legal Review (LL Review). We refer to LL Review as there are different offerings and some offer different types of review.

We would also query the liability obligations in such an arrangement if something does go wrong. In particular, Non-Qualified Suppliers typically issue a disclaimer along the lines that the user is responsible for making sure the document is appropriate and suitable for its intended use. Moreover, if the user obtains LL Review, they will need to determine who they are to sue, the supplier or those providing the LL Review.

Thus, obtaining documents from a Non-Qualified-Supplier may mean there is no PI Insurance cover even if a LL Review is also paid for. Moreover, if the adviser is undertaking legal work, then the adviser’s own PI Insurance may not be available.

It is also worthwhile noting that there are substantial penalties for non-qualified persons providing legal services. Moreover, when we compared the combined cost of the license fee and the LL Review fee for SMSF deeds from several suppliers it appeared there was no real cost saving compared to obtaining these documents directly from a law firm like DBA Lawyers (for both new SMSF deeds and SMSF deed updates).

What due diligence is needed?

This raises an interesting point — before ordering from a Non-Qualified-Supplier — have you undertaken sufficient due diligence to determine whether you have made an informed and the correct decision. Some questions and checks might include:

· Review the suppliers’ terms and conditions to check who is liable if things go wrong.

· What is covered by the LL Review and what PI Insurance, if any, is provided and by whom?

· If you are taking on the responsibility, have the documents been carefully reviewed to see if they are appropriate and if there are any traps or issues to warn clients of? If you do not have the skills or expertise to undertake this task, you should engage a lawyer or expert to do so.

· Can you obtain special tailoring and additional support from the supplier (or a law firm that provides the LL Review service) or do you need to go elsewhere?

· After considering the supplier’s offering how does it compare to engaging a law firm to provide the same documents after taking into account the overall value proposition and the risk factors raised above?

Conclusions

We recommend that clients consider the quality, service, the overall value proposition and risks when deciding where they should obtain their Legal Documents from. By engaging a law firm with the requisite expertise, you obtain:

· confidence that the documents are prepared by lawyers who are qualified and have PI Insurance; and

· the ability to obtain advice and support that may be required later on and a relationship to refer your client on to if ever needed.

In many cases, the added protection and support offered by a law firm is likely to outweigh any initial apparent cost savings from using a Non-Qualified-Supplier.