by Carol Woods

Like any other business providing a service to the public, lawyer referral services must be concerned with the financial "bottom line." In an increasingly competitive market, referral services must consider the most effective means of generating income. Programs that stress public service need to pay special attention to the revenue-producing aspects. In the best-case situations, the fee-generating aspects of the programs have been successful enough to support the many non-fee-generating public service activities that make up a large part of most lawyer referral services.

The revenue resource that has proven most effective for referral services is some type of percentage fee structure, which requires that participating attorneys remit a portion, typically 10 to 15 percent, of the fees received from LRS referrals. Similar systems are in use in approximately one half of the bar-sponsored lawyer referral services in the country. Ethics opinions from various states have frequently concluded that a percentage program is an ethical way for a lawyer referral service to generate income when the funds are used to defray the cost of operating the service.

The benefits of such a system are numerous. First, most services that institute such a system see a marked increase in revenues within two years of implementation. The attorneys on the panel only pay on fees actually received, so that low or no fee work is not included in the percentage fee program. The LRS may develop a flat percentage fee approach (e.g., charging attorneys 10 or 15 percent of all fees received), or it may develop a sliding scale (e.g., charging five recent of the first $1,000 received and 10 percent of the fee above that). Some programs differentiate between contingent and non-contingent fees, typically assessing a higher percent fee in contingency cases.

In implementing any new revenue-raising approach, it is important to keep in mind that the program may experience an initial decline in panel membership as a result. Experience has shown, however, that the loss is generally a small percentage of the total panel membership. The income raised makes the practice worthwhile even with a slight drop in panel participation.

Further, any membership loss will result in more referrals to those attorneys remaining on the panel, thereby increasing the benefit of their participation. Membership usually increases again once word spreads about the benefits received by the remaining panel attorneys.

Plan Ahead

Instituting a percentage fee program where none exists takes planning if it is to be successful. A referral service should allow six months to a year from the time such a proposal is favorably received until the program is in operation. Time is needed to formulate a strategy for launching the program, to make policy decisions regarding the new fee structure, and to develop the administrative procedures necessary to ensure the percentage fee program's success.

Some referral services have encountered opposition to the establishment of a percentage fee program on the grounds that it constitutes "fee-splitting." Be prepared to refer them to ethics opinions concluding that these fees are ethical under the Rules of Professional Conduct.

Other opposes a percentage fee program because they believe it will require them to collect funds on behalf of the lawyer referral service. Panel attorneys, however, need only collect the fee normally charged for their services and remit a portion of that to the service.

Simple economic concerns are another source of opposition. Attorneys may resist dividing the fees and generating less income for their services. So, remember to point out that a percentage fee program is fair because the cost of operation is borne by those attorneys who benefit financially from the service. Attorneys pay percentage fees only on referrals that result in fee-generating cases.

Involve and Inform Panel Members in Advance

Panel members must be fully informed well before such a program goes into effect. Some services survey their members about their receptiveness to the idea and publish several articles regarding the proposed arrangement in the local bar publication. It helps to inform members that the trend among lawyer referral services is to raise revenue in this manner, and to ask them for their opinions.

Stress the fact that the new fee structure will allow for improvements in the service that the LRS provides to participating attorneys. For example, if the increased fees are to be used, in part, for expanded marketing such as increased advertising in the Yellow Pages, you should give this information to paned members.

Develop Appropriate Policies

The lawyer referral service will need to anticipate problems and develop response policies prior to implementing percentage fee system. There are several common issues that programs with percentage fees encounter.

The most common problem involves attorneys' failure to return required reports. Additional problems include inaccurate reporting by attorneys regarding the status of a referral and disputes with panel attorneys about the fees due.

The rules of most programs provide that attorneys who do not return required reports become ineligible to receive additional referrals. Lawyer referral services, however, must develop procedures to compel attorneys to report on LRS referrals, even if they no longer are members of the service. Similarly, the LRS needs to decide in advance how it will handle inaccurate reports and fee disputes with paned members. Many programs require that fee disputes be submitted to arbitration.

Develop Administrative Procedures

The words most commonly used in conjunction with a percentage fee program are "follow up procedure." A comprehensive follow up system with both attorneys and clients is essential to the success of the program.

Attorney follow up: Efficient follow up with panel members is essential if forwarding fees is to be a successful source of revenue. One method that has proven effective is to develop a "case status report" for each attorney listing all ongoing cases. As panel members return referral sheets, those cases that have been accepted are listed on the report. The service should require attorneys to send these status reports periodically, rather than ask them to report their fees only at the conclusion of the matter. Attorneys who are delinquent in returning the reports should be ineligible to receive additional referrals.

Client follow up: Follow up with clients also is necessary in order to ensure that the LRS receives all fees due from panel members. "Client questionnaires" are an effective and efficient means of getting feedback from clients. Such questionnaires solicit feedback about the client's satisfaction with the referral service and the attorney, as well as information about the fees that have been paid. Panel members should be informed that questionnaires are sent routinely to LRS clients. (Note: certain clients may not want to be contacted for follow up, especially in domestic relations and criminal cases.)

The service should closely monitor situations in which a questionnaire indicates that a panel member is handling the case. If an attorney fails to report that the case has been opened, the LRS should take action with regard to this inconsistency. For example, it can send a letter asking the panel member to assist in accounting for the discrepancy.

In addition to providing a useful check on the accuracy of the attorney's reports and alerting the LRS to potential problems, client questionnaires often include glowing praise for the services of the attorney and/or LRS staff. Here is an example of the comments the questionnaires generate: "The attorney was great. She spent lots of time answering my questions and really put my mind to rest about this problem. I didn't know where to turn. LRIS really helped me."

It is a good idea to send copies of such questionnaires to the attorney as a means of acknowledging the valuable services that have been provided. These "positive" questionnaires are useful for panel recruitment purposes, and they are an important source of positive feedback and inspiration to staff.

Staffing

Additional staff time is required to implement an effective percentage fee system. For purposes of follow up, staff must obtain more information about each client than may presently be required. At a minimum, the LRS needs to obtain each client's name, address and telephone number. It is a good idea to have a written record of the nature of the problem for which the individual is referred. Expanded record keeping is needed to track referrals and the attorneys' responses. Even recording income from forwarding fees takes additional staff time.

Implementing a percentage fee program need not be overwhelming. While it takes planning, a fair amount of groundwork and extra staff time, the results are usually well worth the effort. If your goal is to run a public service program that does not deed on grants or subsidies, but that is self-supporting, consider a percentage fee program.

Carol Woods is Director, BASF Lawyer Referral and Information Service.