There’s no such thing as a free lunch.”
~ Milton Friedman
I have a theory about lawyers who do not have much of their own client base, and that is that they would be better lawyers if they did have a client base. I say this despite having run across quite a few lawyers who were dripping with clients but sorely lacking in legal skills, and others who had great legal skills but few of their own clients.
I base my theory on the hypothesis that communication and the ability to persuade are important legal skills. If lawyers cannot communicate in a manner to develop client loyalty and persuade people to give them business, surely, they must be missing some skills that, if developed, would make them better at what they did.
If my theory is correct (as all my theories are), then every lawyer who wants to be better at what they do should be striving to develop the skills that are required to build a client base. In addition, we in the legal profession all know that a lawyer with their own clients will have more job security, opportunities, and money than one without them.
So, with this theory in mind, what is one to make of lawyers who sign up with companies which refer clients to them for a hefty cut of the action. I will call such companies “Referral Firms” although the arrangements will typically be structured to look like something else in order to comply with regulatory requirements.
There are a few Referral Firms out there, some with more credibility and higher standards than others, but all are based on the premise that they can deliver clients to lawyers who do not have enough (or any) of their own. Some of them are law firms. Some are not. Some bundle their services with administrative support. Others do not. What they all have in common is that they purport to bring clients to independent lawyers, and they earn a nifty profit for themselves. The lawyers who service the clients brought to them sacrifice some portion of what they would otherwise be able to charge to clients they sourced on their own.
In one case that I looked at recently, the lawyer, who has several years’ experience in a specialty area, committed to provide services to a large corporate client introduced by a Referral Firm. The lawyer was paid significantly less than $100.00 per hour (net of fees paid to the Referral Firm, but before taxes).
Let’s put aside some of the questions about this aspect of the legal industry, including how these Referral Firms manage to do this in the face of a restrictions on lawyers paying referral fees, whether they properly vet the lawyers they work with to ensure the quality of the legal services that they deliver to their clients, and whether they provide a valuable service to their clients in delivering quality legals services at a reasonable cost.
For today, I simply want to look at this from the perspective of the lawyers, often relatively new to the profession but sometimes not, who sign up with a Referral Firm. Unless they have a real plan for using these referrals to stay afloat financially on a temporary basis while they work hard at weaning themselves from the service and developing their own clients, it seems to me that they are on a voyage to nowhere. They are sacrificing a sizable percentage of what they could bill to an independent client, contractually restricted from dealing with the clients other than through the Referral Firm, and probably too busy doing the referred work to develop their own client base.
There is also the issue of job security. There is no guarantee that the Referral Firm will continue to send them work, and the lawyers have no control over potentially arbitrary decisions being made. As Steve Maraboli said, “I learned a long time ago that if I give them the power to feed me, I also give them the power to starve me.”
Everyone knows that there is no such thing as a free lunch, but I am not so sure that lawyers using these Referral Firms know just how much lunching on clients that they did not themselves bring in is going to cost them in the long run.
This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.