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The Practice Management System—The Asset Under-exploited by Risk and Compliance

Having focused on risk and compliance projects for the last five or so years, it has struck me that in almost every firm I have worked with, the firm has failed to recognize what could be a highly significant feature of the modern practice management systems—the entity. Most firms do not understand its potential. The purpose of this brief article is to explain how firms could derive greater value from what they already have for no additional cost.

Within 3E®, every object, including client, vendor, payor, payee, and employee, must be linked to an entity. In most cases, every time a client, vendor, or payor is created, firms will create a new entity irrespective of whether or not a suitable entity record exists. The reality is that the way modern finance systems are designed, a single entity record can have each of these items beneath it. The problem with creating a new entity for each object is that it becomes very hard for the firm to understand its total relationship with the organization or individual because the relationship is spread over many entity records.

From a risk and compliance perspective, I would argue that we should not be doing AML at a client level. Clients might have multiple client numbers; payors might become clients; or clients might become payors. We surely should be using institutional knowledge to simplify or negate compliance effort to clear things.  

In the case of joint clients, we can use the evidence gathered and clearances given for existing entities in situations where there is a joint instruction. Consequently, we recommend to clients that they should track AML at an entity level.

There are benefits for finance teams as well: the total exposure to a specific entity can be clearly and easily determined, be that as a client, part of a joint client, or simply as a third-party payor. By linking the clients, joint clients, and payor records to the same entity, it is possible to report on the total revenues and AR – direct, indirect, shared and personal.

Marketing and Business Development (MBD) benefits also exist. MBD is focused on understanding and capitalizing on the firm’s relationships. Used properly, MBD can help you understand where work is really coming from and where there are joint parties. You can automatically report on the entities that make up the joint client and the linkages between these joint clients and the sole clients. You can also link clients in to corporate trees and understand how certain entities might combine in to a client’s divisions. 

These entities can then be linked to create groups under the commercial agreements or terms to try and ensure that agreed group pricing and terms automatically get applied in a rather more nuanced way than simply a related client. The opportunities are considerable once the firm understands the power of correctly structuring data.

To Bring It to Life, Here Are Two Examples

I am currently working with a firm that, for business reasons, creates a client record for each office.  It has more than 30 offices, so a specific client entity might exist with 30 client numbers. It has been storing AML at a client level; there is considerable manual effort to try and ensure that the data remains consistent and that clearances are copied from one client number to the others. By consolidating the clients and payors under one entity, it will only have to do AML once, saving time and reducing the room for errors and mistakes.

In a private client firm which works with entrepreneurs, the firm is working with individuals, their businesses, trusts, and relations. In another firm, we have put the tools in place so that when the entrepreneur behind an existing client instructs the firm that they want to buy a house with their spouse, the only evidence requirements are those of the spouse but also, from a financial perspective, the significance of the entrepreneur for revenue purposes can be clearly seen.

How Do You Make Entity More Valuable in Your Organization?

Sadly, for most firms, the entity data is not as clean as it needs to be; firms have not understood the potential that comes from using the data structure properly. All is not lost though. 3E® v2.8 has a native feature which allows the firm to merge two entities; it doesn’t merge the client records, just the entities. The client and matter numbers remain the same. It is therefore possible to cleanse the data. 

If the firm is on a version prior to 2.8 or wants to bulk merge the data, Pinnacle’s technical team has developed an entity merge function which will allow bulk merging of entities. The Pinnacle data stewarding team can identify and manage the process of cleansing the data. So far, our record is merging 65,000 duplicates for a single client! 

As the data become cleaner, the firm can easily gain clearer insights into its relationships and manage risk more effectively by changing the reporting to use the entities to aggregate financial figures and report on risk compliance.


Pinnacle focuses exclusively on providing 3E consulting services to law firms throughout the systems implementation lifecycle. Pinnacle consistently has a positive impact on project outcomes. Services offered include implementation and process consulting, data conversion/balancing, and development/customization. Click here for more information.

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