Should You Barter Your Legal Services?

Bartering is “… A method of exchange by which goods or services are directly exchanged for other goods or services without using a medium of exchange, such as money.” [Wikipedia].

For a lawyer, bartering might consist of swapping services with someone like a Web designer. In exchange for setting up a business entity, you receive a new Website.

What are the Ethical Implications of Bartering?

When a lawyer accepts in-kind payment for legal services, whether the payment consists of the client providing services to the lawyer or an ownership interest in the client’s business, the lawyer is going beyond simply establishing a contract for legal services, and instead is doing business with a client. When entering into a business transaction with a client, lawyers must follow the requirements of RPC 1.8(a).  [Excerpted from Alternative Pricing Models: What’s in a Fee?]

This means:

  • The terms of the agreement must be reasonable and fair.
  • Your fee agreement must be in writing.
  • You must obtain the informed consent of your client to proceed (usually contained within the fee agreement).
  • You must recommend that the client consult with another attorney in deciding whether consent should be given.
  • You must fully disclose the details of the business transaction and each party’s role (part of informed consent).

Bartering and Professional Liability Exposure

Prior to 2016, Oregon lawyers were required to provide the Professional Liability Fund [PLF] with copies of business transaction disclosure letters or risk exclusion of coverage. The reporting requirement to the PLF has been removed for plan year 2016. Lawyers are no longer required to provide the PLF with copies of disclosure and consent letters when engaging in business transactions with clients.  As a courtesy, the PLF continues to offer a sample disclosure letter on its Website.

Beyond the Obvious Ethical Traps and Liability Exposure

Barter exchanges have practical implications.  Ask yourself:

  • If you do not complete the work for the client, how will you “refund” a portion of your “fee?”
  • Are you prepared to keep the proper records?
  • Do you understand the tax requirements for barter exchanges and the penalties for failure to report?

If you plan to barter with a client in exchange for legal services, be prepared:

  1. Read Alternative Pricing Models: What’s in a Fee? by Helen Hierschbiel.
  2. Obtain a copy of the sample disclosure letter on the PLF Website.
  3. Understand how your professional liability coverage works.  The PLF Primary and Excess Plans are available on the PLF Website.  Call the PLF with coverage questions: 530-639-6911 or 800-452-1639 (Toll-Free in Oregon.)
  4. If you’re still foggy on the ethics, contact Oregon State Bar General Counsel.
  5. If you need help with tax-related recordkeeping and reporting, speak with your accountant or a tax lawyer.
  6. Learn the ins and outs of bartering – if you are trading legal services for a new Website, verify that your potential client can do the job.  Check out these informative sites and posts: BarterQuest – when, where, and how to barter; How to Barter AnythingHow to Barter for Goods & Services – Tips and Methods to Trade; and Barter 101: Trading For Services.

Nothing prohibits bartering with a client for legal services, but like so many alternative fee approaches, be sure you know what you are doing before you enter into an agreement you might regret.

[All Rights Reserved 2016 Beverly Michaelis]

Postscript

For more on the topic of engaging in business with clients, see Too Good to Be True: The Ethics of Business Transactions With Clients.

Pledge to Get Paid in 2016

How many times have you heard, “If you want to avoid collection problems, get your fee up front?”  Good advice, but how exactly do you make it happen?  Here are four sure-fire techniques:

Use Evergreen Retainers

In this type of arrangement, the client agrees to maintain a specified retainer balance at all times.  Your bill should reflect the initial retainer deposit, fees and costs incurred during the month, total funds disbursed from the client’s retainer, any balance remaining, and the amount needed to replenish the retainer.

Keep a careful eye on the client’s balance at all times.  If the client fails to replenish the retainer as required, be prepared to enforce the terms of your agreement (including withdrawal).

Offer Discounts

Discounts can be a great motivator for clients to give you a retainer, pay your fee up front, or promptly take care of an outstanding balance.  Here are some examples:

  • Your rate is $250 per hour if the client is invoiced, but if the client establishes a retainer, your rate is reduced to $200 per hour.  [Establishing a retainer triggers the lower hourly rate.]
  • You offer preparation of a complete estate plan at $2,500, due and payable upon completion.  If the client is willing to pay up front before work begins, your flat fee is reduced to $2,000.  [The earned upon receipt fee triggers a $500 savings to the client in return for being paid now.]
  • You offer 10% off your bill if the client remits payment within 10 days (instead of the usual 30 or more).  [Your early payment discount saves the client money and allows you to collect the outstanding receivable in one-third the usual time.]

Tinker with the math to make discounts work for you.

Practice Tip: If you intend to charge a “fixed fee earned upon receipt” read and understand Oregon Rules of Professional Conduct 1.5 and 1.15-1  and OSB Formal Opinion 2005-151These arrangements must be in writing and must contain specified disclosures.

Collect Last Month’s Rent

Inspired by a common practice in landlord-tenant agreements, the “last month’s rent” approach requires the client to pay a security deposit into the lawyer trust account. Each month the client is invoiced and expected to pay.  At the conclusion of the matter, the security deposit is used to pay the client’s final bill. Alternatively, the deposit can also be used if the client fails to pay a monthly invoice.

As with all fee agreements, put your “last month’s rent” arrangement in writing. Keep in mind that if the client’s funds can earn net interest, you are required to establish a separate interest-bearing account for the client or obtain a waiver of the client’s right to interest. See OSB Formal Opinion 2005-117 for additional details.

Accept Credit Cards

Avoid bookkeeping hassles by using a private credit card processor who will take merchant fees only from your business account, not your lawyer trust account. Be sure to read and comply with OSB Formal Opinion 2005-172.  Credit cards are a great way to collect retainers when clients can’t otherwise come up with the funds.

[All Rights Reserved 2016 Beverly Michaelis]

February is Finance Month

February 2016 is finance month at Oregon Law Practice Management.  We are going to revisit and update some “oldie but goodie” posts on law firm finances: money-tree

  • How to get paid
  • Bartering for legal services
  • Adding surcharges if the client fails to pay
  • The seven golden rules of collection
  • The five C’s of hybrid fee agreements

We start off tomorrow with Four Sure-Fire Ways to Get Paid in 2016.

See you on February 1!

[All Rights Reserved 2016 Beverly Michaelis]

 

The Year in Review – Top Posts in 2015

Thank you loyal readers!  As 2015 comes to a close, here is a look back at the year’s top posts:

Working Effectively – Time Management, Staffing

File Management – What to Keep, What Not to Keep

Marketing, Business Development, and the Attorney-Client Relationship

eCourt

Fees – Getting Paid, Finances, Credit Cards, Trust Accounting

Security

Technology – Macs, TECHSHOW, Office 2016, Windows 10, Paperless, and More

Potpourri

[All Rights Reserved 2015 – Beverly Michaelis]

Get Organized for Year End

Wthith all the demands on our time during the holiday season it’s easy to push aside the
task of getting records organized for year-end.  But doing so is an absolute necessity – especially for the sole practitioner.  Here is some solid advice from the experts:

Get started today. By beginning the process before year-end you will have a better sense of where you stand financially.  You may find it makes sense to pre-pay 2016 expenses [bar dues, professional liability coverage, rent] or make a contribution to your IRA or other retirement fund.  Wait until January 1 and it will be too late for some of these tax-saving steps.

All Rights Reserved – Beverly Michaelis [2015]

Discounts for Oregon Lawyers

10-12-2015 4-25-49 PMIn 2015 the Professional Liability Fund added WordRake, Client Conflict Check, MyCase, and Zama to its discount lineup.  But did you know that we offer discounts on five other products?  Visit our website to learn more.

The PLF offers discounts on cloud-based practice management software, including MyCase, conflict checking software (Client Conflict Check), and business productivity software (WordPerfect, PDF Fusion, and Perfect Authority).

WordRake, one of our newest offerings, is editing and proofreading software geared to the legal profession:

WordRake tightens, tones, and clarifies your writing. Just click the “rake” button and watch the in-line editor ripple through your document, suggesting edits to remove clutter and improve unclear phrasing, just like a live editor. Give your first drafts the polish of a second or third draft, quickly and painlessly.

Watch a 30-second demo here.

Zama is a news, alerts, and content monitoring service:

Zama mines over 70,000 news, information, and social media sources so you don’t have to. Easily find the information to help grow your business and strengthen client relationships.  Organizations that use Zama include Oregon law firms Ball Janik LLP and Karnopp Petersen LLP.

To better understand how Zama works (and might apply to your practice), read this blog post by Bob Ambrogi: New Service Helps Solos, Small Firms Monitor News Relevant to their Practices.

We are always on the lookout for ways to help Oregon lawyers save money and hope to add more discount programs to our lineup soon.

All Rights Reserved [2015] Beverly Michaelis

Reasons You Should Visit WSBA’s new Unbundled Legal Services Webpage

Whether you belong to the WSBA or not, I recommend you follow NW Sidebar – one of the best legal blogs out there. 

Here is a reblog of their recent post on unbundling.  For an Oregon perspective, see The Ethics of Unbundling and Unbundling Legal Services – The Latest Twist.

Here is the NW Sidebar post:

WSBA has a new Web page about unbundled legal services, and we have five great reasons why you should check it out.

http://nwsidebar.wsba.org/2015/10/30/friday-5-reasons-you-should-visit-wsbas-new-unbundled-legal-services-webpage/

What to do After a Data Breach

A data breach is a traumatizing event, regardless of how it occurs, and this has been a particularly active summer for thieves and scammers.

In the past 12 months, Oregon lawyers have reported home and office break-ins, stolen laptops and mobile devices, and malware security intrusions.  If you experience a data breach, here are the key steps you must take:

  1. Contact an IT expert NOW before you pass go.  The scope of the intrusion may reach beyond your stolen mobile device or the specifically infected computer. Until you know better, assume that all connected devices are part of the data breach. This might include your desktop computer, your assistant’s computer, your server, mobile devices used to access your network, and your home computer if you connect remotely to your office.  Fixing security issues will require sleuthing, finding a solution to the problem, protecting existing data and devices not affected by the breach, testing security solutions, and potentially preserving forensic evidence.  Don’t try to DIY!
  2. Change vulnerable user names and passwords.  At the first indication of a data breach, you won’t know exactly what went wrong – only that your information, or your clients’ information, has been been compromised.  With your IT expert’s help, get access to a secure computer to change vulnerable user names and passwords.  [If you modify your login credentials while a keylogger resides on your system, you’ve made the situation worse by supplying the hacker with your newly replaced user names and passwords.]
  3. File a police report.  Realistically, this isn’t likely to help.  However, it may be required under the Oregon Consumer Identity Theft Protection Act [ORS 646A.600- 646A.628] or the terms of your insurance/coverage policy.
  4. Report the breach to your property manager.  If the breach occurred in connection with an office break-in, inform the property manager as soon as possible.  Broken windows and locks should be fixed immediately to avoid further loss.  If you believe inadequate security may have played a role in the break-in, it may be appropriate to assert a claim against the management or building owner. Research the issue or speak to outside counsel. Document your property loss and consider getting a commitment in writing about security improvements.
  5. File claims with commercial carriers.  Submit claims to any applicable insurance carriers: cyber liability and data breach, commercial liability, or others.
  6. Contact the Professional Liability Fund.  If you are an Oregon lawyer, contact the PLF. Beginning in 2013, the PLF added a Data Breach and Cyber Liability Endorsement to all excess coverage plans. The endorsement provides coverage for information security and privacy liability, privacy breach response services, regulatory defense and penalties, website media content liability, and crisis management and public relations services. The endorsement covers many claims that would otherwise be excluded.
  7. Contact the Oregon State Bar.  The OSB General Counsel’s office can give you advice about the ethical implications of a data breach.
  8. Report identity theft to the FTC.  If you are the victim of identity theft, file a report with the FTC as soon as possible.  Review the FTC website for other steps not discussed here [reporting a misused social security number, removing bogus credit charges, replacing government-issued identification cards].
  9. Freeze or place fraud alerts on credit accounts.  A freeze literally locks down your credit. No credit transactions can be authorized until you lift the freeze, temporarily or permanently.  Fraud alerts inform you if someone is attempting to obtain new credit in your name.  Learn more about credit freezes and alerts here.
  10. Protect bank accounts, credit cards, and debit cards.  If banking, credit card, or debit card information was exposed in conjunction with the data breach, you may want to freeze your bank accounts [personal, general, IOLTA]; arrange for fraud protection services; or close your accounts altogether.  Talk to your banks and credit/debit card providers.  If you have automated payments tied to former bank accounts, credit or debit cards, be sure to update your information.  This includes payment accounts associated with federal or state court eFiling systems.  Continue to monitor statements for unauthorized transactions.
  11. Notify clients.  This is never easy, but clients must be informed if confidential information has been compromised. A sample notification letter is available on the PLF website.  Select Practice Management > Forms > Client Relations > “Notice to Clients re Theft of Computer Equipment.”  If you have questions about your ethical duties toward clients, speak to OSB General Counsel [see step 7 above].  Additionally, client notification may be a statutory responsibility under the Oregon Consumer Identity Theft Protection Act [ORS 646A.600-646A.628].
  12. Begin reconstructing files if needed.  Lawyers who are straightforward about an office break-in or theft often find that clients are sympathetic, understanding, and more than willing to help.  With a bit of luck, you should be able to reconstruct most or all of your files from your backup or documents supplied by clients.
  13. Monitor your credit report.  Check your credit reports at annualcreditreport.com for signs of fraud.  Annualcreditreport.com is the only official source for free credit reports authorized by the Federal Trade Commission.
  14. Monitor Craigslist.  If you believe a thief has posted your property for sale, inform police.
  15. Start using encryption.  Read “Encryption Made Simple for Lawyers” as a starter, then check out these resources from the ABA Legal Technology Resource Center. For reviews of encryption products, check out LawSites.  [In the navigation pane on the right, scroll midway down the page to Search LawSites.]  If you want an encrypted password manager – a very good idea – see these top picks for 2015.  Shopping for a new laptop?  Don’t forget that hard drive encryption is automatically built into the MacBook.  Using Windows OS? Sorry, you’ll need to buy your own encryption software.  If all this seems overwhelming, talk to your IT expert.
  16. Backup, backup, backup!  Online backup services are a great way to automatically back up data.  Read more about backup protocols and available resources on the PLF website. Select Practice Management > Forms  > Technology > “How to Backup Your Computer” and “Online Data Storage.”
  17. No cyber liability or data breach coverage?  Buy it!  If your claims weren’t covered, purchase cyber liability and data breach insurance to protect against future loss – privately or through the PLF  as part of our excess program.  [See item 6 above.]
  18. Stay vigilant.  Fixing a data breach does not mean that scammers or hackers will stop.  Watch out for phishing attempts.  Don’t click on suspicious links in emails, texts, or social media messages.  I’ve written over 20 blog posts on the subject of scams. To find the posts, visit my blog’s landing page. In the search box in the upper right corner, enter “scam.”  You’ll also find seven In Brief articles on the PLF website.  Select Practice Management > Publications > In Brief and enter “scam” in the search by keyword or year box.  See also Jennifer Meisberger, “Sophisticated Scams: Protect Your Clients’ Money,” Oregon State Bar Bulletin (June 2015) and the PLF CLE, Protecting Your Firm and Your Client from Scams, Fraud, and Financial Loss.

All Rights Reserved [2015] Beverly Michaelis

Are You Losing Clients?

If your client retention rate is less than 90-95%, something is terribly wrong.

You might react by changing your fee agreement – aiming to “punish” the client who terminates your services after a substantial amount of work is done but prior to a recovery.

Unfortunately, this doesn’t solve the underlying problem.  If you fail to keep one in ten (or more than one in ten clients), it is time for some serious soul searching.

Hybrid Fee Agreements Don’t Solve Client Retention Problems

Don’t get me wrong, hybrid fee agreements have their place.  They are very effective in helping lawyers achieve cash flow during long months of toiling away on a contingent fee case.  They are also a creative way to address client push-back against the traditional hourly fee approach.

They are not effective in curing client retention woes.

What Does it Take to Keep Clients?

Improving client retention isn’t rocket science.  In fact, you can do it by following a simple acronym:  TREAT.

T – be Timely

R – Respond to client requests and concerns

E – show Empathy

A – demonstrate Assurance that client matters are being handled competently

T – deliver on the Tangibles.  Don’t send emails, invoices, or correspondence riddled with errors.

Read more about TREATing clients well here.

To simplify: show the same care and concern to your clients that you wish someone would show to you if you were in their shoes.

Remember that Poor Client Retention Can Lead to Bar Complaints and Malpractice Claims

If you need further motivation to kick your client retention up a notch, understand that how you treat clients is connected to everything in your law practice:

  • Client satisfaction and retention
  • Getting paid on time
  • Minimizing fee disputes
  • Future referrals
  • Avoiding bar complaints and legal malpractice claims

Go beyond TREATing clients well.  Do a thorough client relations check-up. This includes understanding the scope of the attorney-client relationship (when you can act and when you need the client’s informed consent) as well as managing client expectations.

Losing Clients on a Regular Basis Just Shouldn’t Happen

I am not currently in private practice, but in regard to client retention, nothing has really changed.

Back in the day, exactly one client terminated our firm.  This particular client read about a case in the news that she judged to be the same as hers.  She then fired us to free herself up to hire the lawyer who handled the case she read about.

In truth, we dodged a bullet when the client made this decision.  She would never have accepted (from us) that her case didn’t have the same value as the one she read about.

I can also share that in all the years I worked for a private law firm, we were on the other side of a client termination exactly once.

My point here is that my firm – and all firms we knew – simply didn’t lose clients.  And this is still true today for the majority of lawyers.  How do I know?

A large part of my job entails helping lawyers or families of lawyers close law practices.   I have been exposed to lawyers who were at the top of their game and lawyers who were not.  I also have a substantial amount of ongoing client contact due to these closures.

The truth is the lawyers need to do a lot wrong, and generally for some period of time, before clients jump ship.  Therefore, you don’t have to follow my client relations tips or suggestions for TREATing clients well 100% of the time.  No one is perfect.  But you should keep clients uppermost in your mind just about every waking moment that you are at work.

We All Know What to Do – Why Can’t We Do It?

None of this is really new.  So why is it so hard?  The number one reason: you are trying to juggle too many cases without the proper resources.  You are practicing beyond your expertise and not weeding out cases and clients; you are practicing within your scope, but your caseload is too high; you are unwilling to invest in staff, technology, or other solutions.

Making money isn’t easy.  As a result, many lawyers skimp.  They try to get by without hiring someone despite the fact they have more work than they can handle.  This trap is referred to as “penny wise and pound foolish.”  Next week I’ll write about how you can make money by spending money and hiring staff.

All Rights Reserved [2015] Beverly Michaelis