I probably should stop and say that I agree with much of what you have said thus far. I agree that lawyers need to be open and forthcoming about the basis for their fees, and that flat rates may be particularly open to abuses. I also appreciate that we may have been talking past each other– at first I was not aware that the scope of your thoughts seems to be limited to relatively unsophisticated clients (which takes most of my business clients out of the picture).

That said, I still believe that flat or percentage rates for certain services can benefit clients even if they are not 100% commensurate with the amount of time spent on the project, but rather vary depending on the size of the transaction, amount of risk taken by the lawyer, skill and experience, etc. These rates (whether they are flat rates for forming an entity or some type of basis point or percentage calculation when dealing with some type of asset-based transaction) allow for easy rate comparison for clients and potential clients. If I charge $1500 to form an LLC, and Bob next door does the same thing for $500, then a client driven solely by price will go to Bob to form his LLC. But if I am an expert in the area, and I spend lots of time keeping up with the law and updating my forms, perhaps a client not driven solely by price will use my services even though they cost more. This is the same thing that happens when I go to an expert at a large firm who charges $500 or more an hour on an hourly basis versus going to the wet-behind-the-ears young lawyer (of which I am one) who charges $100 or so an hour. The client pays more with the understanding that they are getting some extra wisdom for their extra dosh.

I may have just wasted my breath on the above, because I realize looking back at it that my target client base is still fairly high on the sophistication continuum. I’ll have to mull this one over a little more yet.

Dave

I probably should stop and say that I agree with much of what you have said thus far. I agree that lawyers need to be open and forthcoming about the basis for their fees, and that flat rates may be particularly open to abuses. I also appreciate that we may have been talking past each other– at first I was not aware that the scope of your thoughts seems to be limited to relatively unsophisticated clients (which takes most of my business clients out of the picture).

That said, I still believe that flat or percentage rates for certain services can benefit clients even if they are not 100% commensurate with the amount of time spent on the project, but rather vary depending on the size of the transaction, amount of risk taken by the lawyer, skill and experience, etc. These rates (whether they are flat rates for forming an entity or some type of basis point or percentage calculation when dealing with some type of asset-based transaction) allow for easy rate comparison for clients and potential clients. If I charge $1500 to form an LLC, and Bob next door does the same thing for $500, then a client driven solely by price will go to Bob to form his LLC. But if I am an expert in the area, and I spend lots of time keeping up with the law and updating my forms, perhaps a client not driven solely by price will use my services even though they cost more. This is the same thing that happens when I go to an expert at a large firm who charges $500 or more an hour on an hourly basis versus going to the wet-behind-the-ears young lawyer (of which I am one) who charges $100 or so an hour. The client pays more with the understanding that they are getting some extra wisdom for their extra dosh.

I may have just wasted my breath on the above, because I realize looking back at it that my target client base is still fairly high on the sophistication continuum. I’ll have to mull this one over a little more yet.

Dave

Dear Dave,  Stop with the strawmen, please.  I have never said that lawyers can’t run a business, can’t make a profit, can’t use a flat fee.
I have said that a lawyer, being under fiduciary and professional ethics limitations, may not charge more than a reasonable fee, and tried to offer guidelines that seemed fair to both lawyer and client — BUT, reminding lawyers that they have sworn to put their clients’ interests above their own financial interests.
Perhaps I don’t have enough details, but the example you gave me of seeing what the market will bear – a flat fee of $1500 for setting up an LLC, using templates you have spent time constructing, and taking about 15 minutes of your time — seems likely to me to be beyond the limits of reasonableness, using any and all of the criteria set forth in Rule 1.5 on fees.  You may charge an hourly fee that reflects your expertise and your investment in time, and perhaps add a reasonable amortization charge (spread across the anticipated client base) for time invested creating technology that increases your efficiency.  However, as a fiduciary and professional, you need to fully inform your client (especially the unsophisticated) why your fee is apparently many times higher than other lawyers would charge for a similar procedure. 
In my opinion, a person who merely wants to be in business should not choose the profession of lawyering.  And, a member of a learned, privileged profession should have higher standards for fiducial duty when price setting than banks do (especially since there are enough sophisticated trust clients to assure that banks charge reasonably competitive rates).
A lawyer may see what the market will bear, ONLY when the price being offered is within the range of reasonableness.  Total candor with a client, and total client understanding of the situation, may indeed turn a fee that otherwise looks unreasonalbe into a a reasonable one, but merely hoping to find an ignorant or totally price-inelastic client is not a sufficient basis for fulfilling fiduciary and professional duties.

Dear Dave,  Stop with the strawmen, please.  I have never said that lawyers can’t run a business, can’t make a profit, can’t use a flat fee.
I have said that a lawyer, being under fiduciary and professional ethics limitations, may not charge more than a reasonable fee, and tried to offer guidelines that seemed fair to both lawyer and client — BUT, reminding lawyers that they have sworn to put their clients’ interests above their own financial interests.
Perhaps I don’t have enough details, but the example you gave me of seeing what the market will bear – a flat fee of $1500 for setting up an LLC, using templates you have spent time constructing, and taking about 15 minutes of your time — seems likely to me to be beyond the limits of reasonableness, using any and all of the criteria set forth in Rule 1.5 on fees.  You may charge an hourly fee that reflects your expertise and your investment in time, and perhaps add a reasonable amortization charge (spread across the anticipated client base) for time invested creating technology that increases your efficiency.  However, as a fiduciary and professional, you need to fully inform your client (especially the unsophisticated) why your fee is apparently many times higher than other lawyers would charge for a similar procedure. 
In my opinion, a person who merely wants to be in business should not choose the profession of lawyering.  And, a member of a learned, privileged profession should have higher standards for fiducial duty when price setting than banks do (especially since there are enough sophisticated trust clients to assure that banks charge reasonably competitive rates).
A lawyer may see what the market will bear, ONLY when the price being offered is within the range of reasonableness.  Total candor with a client, and total client understanding of the situation, may indeed turn a fee that otherwise looks unreasonalbe into a a reasonable one, but merely hoping to find an ignorant or totally price-inelastic client is not a sufficient basis for fulfilling fiduciary and professional duties.

David:

Again, a great post on this topic. I don’t see the disconnect that you see between being a fiduciary and running a business. A law firm is a business–it is only sustainable if your revenues exceed your expenditures. And choosing a lawyer is market-driven for even unsophisticated clients: note that lawyer-shopping is common among businesses and individuals alike.

Other fiduciaries also charge fees. For example, a bank charges a fee to serve as trustee to a trust. These fees are often published as a schedule, and the fees often are commensurate with the total value of the assets contained in the trust. Now, there is no question that the bank as trustee is a fiduciary. Why should that prohibit the bank from charging a flat rate? Accountants also often charge flat rates for their services.

So why can’t a lawyer fiduciary see what the market bears? If my services are priced too high, I won’t get or retain any clients, and will therefore have to reduce my pricing structure if I want to compete in the market for those services.

I’ll think about this some more and add more at a later time.

Cheers,

Dave

David:

Again, a great post on this topic. I don’t see the disconnect that you see between being a fiduciary and running a business. A law firm is a business–it is only sustainable if your revenues exceed your expenditures. And choosing a lawyer is market-driven for even unsophisticated clients: note that lawyer-shopping is common among businesses and individuals alike.

Other fiduciaries also charge fees. For example, a bank charges a fee to serve as trustee to a trust. These fees are often published as a schedule, and the fees often are commensurate with the total value of the assets contained in the trust. Now, there is no question that the bank as trustee is a fiduciary. Why should that prohibit the bank from charging a flat rate? Accountants also often charge flat rates for their services.

So why can’t a lawyer fiduciary see what the market bears? If my services are priced too high, I won’t get or retain any clients, and will therefore have to reduce my pricing structure if I want to compete in the market for those services.

I’ll think about this some more and add more at a later time.

Cheers,

Dave