Categories
Legal Fees

Racing to the Bottom of the Legal Profession

Many of you will be familiar with the old saying (sometimes attributed to John Adams and other times to Winston Churchill) to the effect that “if you are not a socialist at age 20, you have no heart, but if you are still a socialist at age 30, you have no brain.”

I was a socialist at age 20.

Despite that, I somehow found myself articling at the now defunct but then very reputable business law firm of Goodman and Carr, where, in their opinion, I was not the best articling student that they had ever seen.

My income tax rotation consisted of reporting to the late Wolfe Goodman every morning and asking him if he had any meetings for me to attend, and sometimes doing research coming out of those meetings.

For those of you who do not know of Wolfe Goodman, he was a real gentleman and one of the leading tax lawyers of his generation.

Mr. Goodman accurately perceived that I did not really get the social value of what he did in his practice, which was to help rich people hold onto their money. He tried to explain it to me by saying, “Murray, rich people have problems too.”

(As a complete aside, when I was not hired back, he consoled me by saying, “Murray, don’t feel bad about it. Being Wolfe Goodman at Goodman and Carr is pretty good, but I wouldn’t want to be one of the first-year associates.”)

By age 30 I was no longer a socialist. Or at least I was less of a socialist.

Which brings me, in admittedly a somewhat meandering fashion, to today’s topic, which is making money in the legal profession.

I don’t know anyone who went to law school with the stated ambition of doing legal work that is not particularly interesting. And yet, I have come across many lawyers who do precisely that. Some of these lawyers have more of an entrepreneurial bent than a passion for the law. They create ‘legal mills’ which process large volumes of routine transactions (think residential real estate as an example), employ many law clerks to process the files, advertise heavily, and compete on price. If their business skills allow them to get rich running this type of legal practice and that is what they want to do, all power to them. Sometimes I think that I should have done that as well.

There are others who use their entrepreneurial skills to attract and process large volumes of routine personal injury files by advertising heavily on buses, park benches, radio, television, and on the internet. They have catchy slogans and trademarks and they also make good money. Again, good for them if that is what they want to do.

Doing low end work and making good money at it is one thing. Doing it and not making money is something else entirely. That offends every principle that I hold dear about the legal profession. And yet, there are lawyers who do precisely that because they do not recognize that their area of practice has become ‘commoditized’ and they fail to do anything about it.

I fell into that rut for a while. For me it was bank lending work. Years ago, I would bring in loan files from several of the banks. I could make money by employing a law clerk to do most of the work on the files. In the beginning, the Bank would send me the file and tell the customer that if they wanted the loan, my firm would be doing the work and the customer would be paying whatever bill I issued. I would do the work and send the bill. The Bank would pay the bill out of the Borrower’s funds. Life was good.

But things changed over time. The Banks became more aggressive about competing in the small and medium enterprise space. They started caring about how much the lawyers were charging because they would lose business if a competitor could get the legal work done cheaper.

The Banks started asking for quotes from two or three firms and letting the Borrower choose who would represent the Bank. I would quote low if my law clerk had capacity and I would quote enough to make a profit if my law clerk was busy. The other firms would do the same. The customer would always choose the lowest quote. Someone’s law clerk always had capacity so I rarely got the file if I quoted enough to do it profitably.

Sometimes the downtown Toronto firms would even outbid me. Initially, I could not understand how they could do that with their larger overheads. Eventually I figured out that the Banks had an unwritten rule that they could not send me loans which exceeded a certain dollar amount, which was in the range of $10,000,000 at the time. The larger files were reserved for the Bay Street firms. So the large firms would maintain relationships and keep staff busy by bidding low on the smaller loan files, and then make their real money on the larger files. I was stuck doing only the unprofitable work.

After a while, I realized that smaller loan files had become commodities and I wised up. I could either go down market, take the lending practice to a lower overhead environment and compete on price, or I could get the hell out. I got out, which freed me up to focus on an area of law which was much more interesting and remunerative.

There are some areas of legal practice which are now overwhelmingly commodities. Residential real estate (at least in Toronto) is a prime example.

There are also areas of practice which have a low-end and a high-end component, where the low-end has become commoditized. An example would be ‘mom and pop’ wills and powers of attorney for individuals of modest means. The prices get cheaper and cheaper. Lawyers spend less and less time on them. (I would argue that the quality of the work suffers, but others would say that the use of technology allows the quality of the work to be maintained. That is an argument for another day.) 

Contrast that with high-end wills and estates work done for wealthy individuals or people in complex situations such as parents with disabled children or individuals who have been in multiple marriages with blended families. Still wills and estates, but we call that ‘estate planning’ and charge a lot more for it. Lawyers can make good money at that, as they should because the work is complex.

There are many other practice areas with a high-end component where lawyers do interesting work and make money and a low-end component where the work is routine and the fees are in decline. I won’t list them all here because I have already annoyed a great swath of the residential real estate, lending, and wills and estates lawyers, and I need to hold onto the few friends in the profession that I have left.

But here is my point, albeit a long time coming. All legal work is not created equal. If your goal is to do interesting work and make good money at it, you have to recognize when the market is changing and the work that you are doing is becoming a commodity and therefore unprofitable. When you find yourself in a race to the bottom of the legal profession, you have two choices. You can either double-down and figure out how to win the price-wars by lowering your overheads (and arguably your professional standards) or you can abandon that area of work and move up-market.

In my case, I developed an interest in the areas of family business law disputes and family business succession and in my later years of practice I focused my marketing efforts in those areas. I got good files and made reasonable fees doing that. For someone else it may be a matter of migrating from residential real estate to commercial real estate or from wills and estates work for poor people to estate planning for rich people, or from immigration work for refugees to business immigration.

The bottom line? Recognize when you are in a race for the bottom of the legal profession and either embrace it or plan your escape into another area of practice.

4 replies on “Racing to the Bottom of the Legal Profession”

I don’t know how it is in Canada, but in the UK, it is also true that residential real estate lawyers can struggle given the fierce competition even between legal/regulated providers. I used to paralegal in residential property and the prices people are quoting now are barely higher than what they were then, which given the reality of inflation is fairly shocking. And even then, every other couple of days, I see some new start-up that promises to reduce the cost of buying and selling properties even more! It is truly sad to see the commoditisation of what is actually a fairly complex area of law. The result is that many residential property lawyers add very little value which kind of works (for the lawyer) in a legal system with principles like caveat emptor albeit results in much consternation and resentment if issues are identified down the line. Meanwhile estate agents (aka realtors) earn many multiples of what the lawyers do which is also a source of friction.

Whatever the root of the problem, I think what is clear is that, as you hint at, there is a gap between the actual value of the service that some lawyers provide and the perceived value. The client perceives that the value of a lawyer in residential property is fairly low and sees it more as a regulatory requirement, perhaps often because they need to take out a mortgage and need a lawyer to act for both of them and the lender. Also perhaps estate agents are much better at sales and marketing compared to residential property lawyers.

What the French do in this regard is very interesting. In many parts of France, the government has set minimum tariffs for real estate lawyers instructed on sales and purchases of residential property, linked to a percentage of the value of the property. The result is that French residential real estate lawyers are much better paid. I wonder if their work is as a result more highly regarded, and also better.

Hi Chris. Thanks for sharing your experience. With respect to the real estate agents, on top of everything else some real estate agents recommend a lawyer to their clients, often on the basis of price. Here they are making a huge sum of money on the transaction and “adding value” to the transaction by referring the client to a lawyer who will do the deal for $200.00 less than an already low market fee.

In Canada we used to have recommended minimum fees that lawyers would use for residential real estate. Competition law wiped that out.

Oh and when I talk about low fees for residential real estate lawyers instructed to buy/sell a house – I’m talking a number between 60% and 90% of the cost of a cheap Canada Goose coat.

Leave a Reply

Your email address will not be published.