Lawyers and clients alike will be impacted by the future of legal services. To identify areas of change, we can start with the problems with the way legal services are delivered. From a lawyer’s standpoint, problems may include over work, billable hours pressure, friction with clients, and dissatisfaction with the nature of the work. From a client’s standpoint, problems include excessive legal fees, legal fees that exceed value add, paying for the training of associate attorneys, and the billable hour system that rewards inefficiency and unnecessary thoroughness.
So, where is this all heading? A few observations:
- Continually increasing hourly rates is not sustainable. There will be a point at which the rate increases cannot be supported. There will be some exceptions at the high end, but for the vast majority of lawyers, hourly rate increases will have a cap.
- Lawyers who align value with cost will be the big winners. Plaintiff’s lawyers have understood this for a long time, and are laughing all the way to the bank. Other lawyers can follow suit. But it will take courage, and recognition that you will win some and lose some. But trying fee arrangements that don’t work out as planned are a necessary part of the R&D process for lawyers seeking to align value with cost. And, even if the lawyer’s yield is less than hoped for, the lawyer is still making money. Possibilities include fixed fee and success feel arrangements, and retainer arrangements not based strictly on time. Lawyers who add value may be leaving money on the table by only charging by the hour. One piece of advice might only take an hour of time, but might save the client thousands or even millions of dollars. The value is not based on the time. Conversely, a lawyer could spin his or her wheels for many hours with no value added to the client. In those cases, charging a rack rate for the time will not be aligned with value and often creates friction with the client.
- Clients can work better with lawyers to align their interests. Excessive legal fees arenot entirely the lawyer’s fault. Clients also contribute to the cost of legal services by incenting lawyers to be over diligent or wasting time. Having unclear goals, not being decisive on issues, and making your lawyer worry about personal liability (e.g. that he or she is being treated as your “insurance policy”) call all contribute to a lot more work than hoped for, and thus excessive legal fees.
- Shrinking Profit Margins can be Reversed. The profit margins for traditional, bricks and mortar, law firms range from 30% to 40%. This high level of overhead results in clients being over charged and lawyers being over worked. Law firms that can operate at much higher profit margins will be able to recruit the best talent and have the most content lawyers and clients. I started my first virtual law firm in 2004, and the environment for virtual or remote workers has become even more viable, with technologies and lifestyles aligning towards remote work. Certainly, certain practice areas such as litigation will take longer to move to the virtual model, but other areas such as transactional work can easily operate successfully in a virtual environment.