Why is Big Law not interested in Trusts and Estates?

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Why Big Law firms don’t have trust and estates sections

Many individuals with a corporate job who are used to dealing with large law firms for work-related matters discover that many of these Big Law firms do not have or no longer have a trust and estates section. Instead, they find that most trust and estate planners are solo lawyers or members of small boutique-style firms. Naturally, they ask why?

The profitability factor

The short answer is because estate planning does not contribute sufficiently to the bottom line of large law firms.

The impact of the Great Recession

The trend of disbanding estate planning departments started during the Great Recession. It was preceded by an unprecedented increase in the profitability of Big Law. Between 1986 and 2011, the average profits per partner of an Am Law 100 partner increased from $325,000 to $1.48 million (1) while partner headcount increased at a comparable rate. Trust and Estate lawyers in small or solo firms earn perhaps a tenth of that.

The erosion of the Cravath-type reputational capital business model

The Cravath-type reputational capital business model works like this: Birds of a feather flock together. By selecting the best and brightest, and training them well, law firms would acquire reputational capital for excellence, commanding higher billable hour rates and higher profitability than lesser-known competitors.

This model was unfortunately eroded by the people who most profited from it, perhaps because the typical “Big Law” firm was no longer a cohesive unit, or perhaps because of greed; this is interesting material for speculation. The upshot is that partners started to worry about their compensation even more, focusing on how they could build their own ‘portable’ client base (as a bargaining chip for compensation negotiations), and all the way exploiting rather than training junior associates. A concern for the firm gave way to “What’s in it for me?”. This did not help the business model where banding together and doing good work cooperatively improves the firm’s reputation and ultimate success for all (2). Big Law was under immense stress.

Changing client demands

At the same time, consumers of legal services (aka clients) started to question the high hourly billing rates and the open-ended commitments this compensation model entails. The demand for legal services was no longer ‘price-inelastic’, and more and more clients demanded transparency and predictability of legal billing. For more fascinating background about the troubles of Big Law – with its trickle-down effects on the entire legal profession including legal education ­– the interested reader is directed to (1) and (2), the former a shorter digest of the latter.

The cost-consciousness of individual clients

Trust and Estate Divisions were put on the chopping block when Big Law realized that these were no longer desirable core competencies because individual clients were even more cost-conscious than corporate law departments (who outsource much of their work to Big Law).

The non-billable work and client sensitivity

In addition, Trust and Estate lawyers spend much of their time in non-billable work for their clients: “During a typical day, estate planners meet with clients, attend conferences and coordinate the design of legal documents with other wealth management service professionals. Estate Planners draft and review estate plans and network with various referral sources. It is a constant hustle that is unique to the practice. Yet much of that time is not billable and cannot be charged to a client. While valuable, such activities would not be rewarded under the large firm business model. Estate planning clients also simply will not tolerate paying up to $1,000/hour for these services, as is often charged by partners at big law firms. As opposed to large corporations, trust and estate clients are generally more sensitive to their personal budgets” (3).

Sources: (1), (2), (3)

 

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