Dos and Don’ts of Law Firm Referral Fees
Referrals are standard practices among lawyers and a great opportunity to boost revenues and grow your business. However, many attorneys are unsure how to navigate referral fees and fee structures. For example, they may be worried about overcharging, damaging professional relationships, or falling short of regulations and guidelines.
In this article, we’ll break down some of the dos and don’ts of law firm referrals to make complicated decisions much easier.
What are law firm referral fees?
Law firm referral fees refer to the financial compensation received when one attorney or law firm refers a client to another attorney or law firm.
There are many reasons why such a referral may take place: for example, they may believe that another attorney is better equipped to take on the case, there may be a conflict with an existing client or matter, or they may be too busy to add a new client to their caseload.
When successfully incorporated into your business strategy, referrals can help grow your professional network while ensuring you have access to a steady stream of clients.
However, it’s also essential that these fees are
- Negotiated ahead of time.
- Fair and reasonable.
- Charged in compliance with government regulations and state and federal bar rules.
What are the regulations around law firm referral fees?
The exact regulations pertaining to law firm referral fees can vary by state, so you must familiarize yourself with local guidelines beforehand.
Beyond this, the American Bar Association outlines clear rules and regulations that attorneys must follow or take into consideration when referring clients to others. Some of these regulations refer directly to fees, such as Rule 1.5 (e):
A division of a fee between lawyers who are not in the same firm may be made only if:
(1) the division is in proportion to the services performed by each lawyer, or each lawyer assumes joint responsibility for the representation;
(2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
(3) the total fee is reasonable.
From a legal perspective, it is also important to note that referring attorneys and the receiving attorney have a “joint responsibility”. This is a shared ethical and professional obligation to protect the client’s best interests moving forward. If, therefore, the attorney you refer your client to engages in unethical practices, you could be found jointly responsible.
The Dos of Law Firm Referral Fees.
- Know the rules. Before charging referral fees, carry out your research to ensure your practices align with local and state regulations as well as state and federal bar rules.
- Keep the clients up to date. Clients must be kept up-to-date during every stage of the referral process to allow for greater transparency.
- Refer to trusted attorneys. Only refer clients to trusted and reputable attorneys or firms to protect your best interests.
- Set clear expectations. When drafting contracts, ensure you clearly outline the role or responsibilities of each party.
- Agree upon referral fees. Agreeing upon referral fees ahead of time ensures that the expectations of each party are met and enables prompt payment.
- The Don’ts of Referral Fees.
- Avoid conflicts of interest. During the referral process, it’s crucial that attorneys do not violate any conflicts of interest by facilitating referrals from which they would benefit unjustly.
- Make assumptions regarding fees. Referral fees should be agreed upon ahead of time to ensure that invoices are paid promptly, without complaint or damage to your working relationships.
Final thoughts.
Obtaining referrals, or referring to others, can be a great way to improve your law firm’s bottom line, though this process must be handled with the due care it deserves.
If you want to explore other opportunities to improve your law firm’s financial standing, please do not hesitate to get in touch today!
