No one wants to pay more than they think is reasonable for anything, whether that be food, a car, or estate planning. But what’s reasonable? That’s often in the eye of the beholder.
Attorneys often charge by the hour for their time, often at many multiples of what most people make per hour. The hourly rate is set based on a number of factors, including:
- the attorney’s expertise and experience,
- what the market will bear,
- what the attorney hopes to earn during the year, divided by the number of hours she thinks it’s reasonable to work, and
- the attorney’s reputation in the community
The advantage of the hourly rate, especially with legal work that is indefinite in terms of scope, is that the cost expands or shrinks with the complexity of the task and situation. Disadvantages include uncertainty for the client and the fact that the attorney can only make more money by working more hours. It also encourages inefficiency or at least discourages investing in efficiencies on the part of the attorney, since the longer a task takes, the higher the fee. (Of course, if the fee looks out of whack, the client may not pay it or may go to another attorney for the next legal task.) Basing fees on hourly rates can also be confusing in terms of the ultimate cost. The total fee for an inexperienced attorney at $200 an hour may be more than that charged by an experienced attorney at $350 or more an hour for the same task.
For these reasons, many lawyers and law firms are moving to fixed prices for specific services, often with provisions for revising the fee if the scope of the work turns out to be different from what was anticipated at the outset. Fixed prices have become the norm in estate planning, where the extent of the work to be performed can usually be defined at the outset. The problem with this, for attorneys, is that clients might price shop, driving down what attorneys in the same market can charge. In addition, some clients may have more complex situations or need more “handholding” than others. After an initial meeting, attorneys can often assess such cases and charge accordingly. But clients may not understand the reasons for a higher fee quote when they are comparing costs between firms.
Other clients may object to what seem like high fees “just for forms” without recognition that estate planning documents reflect years of investment as they continue to be refined; that important revisions may need to be made in particular cases; or that while the ultimate product may seem straightforward, it can only be arrived at after consultation between the client and attorney that involves tailoring the results to the client’s needs, goals, and values. In addition, while the documents themselves may be relatively straightforward, representation often includes ongoing answers to questions and may require continuing consultation regarding titling assets, all of which may be included in the cost of the documents.
Some attorneys have moved towards lower prices for the initial estate planning, but have required clients to enter into client maintenance plans involving an annual fee so that continuing questions and updates to documents are covered. At least one commentator has suggested that attorneys not charge at all for estate planning documents, but provide them within a monthly or annual subscription program that includes the documents, updates, and unlimited questions and answers. So far, we haven’t seen anyone test out this model.
Inherent Conflict of Interest
Lawyers operate under rules of professional responsibility that are based on the goal of always aligning the interests of attorneys and their clients. This is one of the reasons that in the United States, non-attorneys are not permitted to own law firms. Non-attorney owners would not be bound by the rules of professional responsibility and could put their attorney employees in a bind—the business owner seeking to maximize profits and the attorney employee seeking to serve the best interests of his clients. That’s certainly a concern, but it’s not necessarily a construct based on reality. Attorney owners of law firms also want to maximize profits and can be faced with conflicting goals of running a business and providing professional services to clients. Of course, whether the owner of the practice is an attorney or a non-attorney, it’s generally good business to provide high-quality services and to charge fees that are viewed as reasonable in the particular area of practice.
In fact, I see the bar on non-attorney ownership of law practices as actually hurting clients—at least in the area of estate planning. The reality is that law practices are generally undercapitalized because they cannot raise funds from non-lawyers. As a result, they have not made the investments in computer and practice systems that would drive down the price and drive up the quality of the services they offer clients, Instead of such efficiencies and quality control, we have individual lawyers and small firms doing the best they can for their clients with variable results.
So, how does this tangent own non-attorney ownership of law practices relate to this blog post on fees for estate planning? It relates to the issue of a natural conflict of interest between attorneys and their clients, which is the same conflict that exists in virtually all business relationships. The attorney wants to earn more and the client wants to pay less. One of the difficulties in professional businesses is that it can be difficult to compare one provider with another in terms of the quality of the service provided and the relationship between the professional and the client. In addition, the professional often has a greater depth of knowledge than the client about the work involved and, as I mentioned above, the client may be operating under misconceptions about the level of expertise and amount of work required. The rules of conduct of each profession are meant to protect clients in these situations, but they cannot always align the interests of all of the parties involved.
So, what does this mean for clients and attorneys in terms of setting fees? My conclusion is that the more full the discussion is up front about the work involved, the expertise required, and the basis for fees, the better. Most clients will not want to go to the lowest-cost attorney because they will understand that if the fee is too low, the service and quality of work will have to suffer. Most will want to avoid the highest-cost law firm (except for those rare situations where money is no object). The result is that most legal fees for a specific legal project, whether hourly, flat fee or a hybrid of the two, will be within a range for the community and the client should choose the attorney and law firm based on other factors: experience, expertise, “bedside manner,” quality of interactions with the office and staff, and more.
What do you think?