Why are attorney fees so high?
The questions, “Why are attorney fees so high?” and “Why are lawyers so expensive?” are essentially different variations of the same theme: The perception that practitioners in the legal profession charge too much for professional services, or that their fees are disproportionate to the services they provide.
Hourly Rates
Attorneys typically charge hourly rates, although some attorneys charge flat-fees. The reason most attorneys still use hourly rates is that they often do not know how much work will be required to solve a given legal problem. Unlike selling a widget– where one can quite easily calculate the cost of production and then sell the widget at a price sufficient to cover the production costs and either pay the Seller a salary or profit– attorneys may not know at the outset all the facts of the case, how a judge might rule, whether the other side is reasonable and will settle or take the case all the way up on appeal. While a cynic could certainly argue that attorneys have a vested interest in working slowly or dragging things out as long as possible to increase billable hours, the truth is that attorneys are very aware that their reputation is more valuable than a few extra hours. Therefore, most attorneys have strong motivation to work efficiently and get results for their clients.
Retainers
Attorneys are probably the last and only professionals that demand payment up-front. When you go into a restaurant, they don’t ask that you pay for your meal before it’s cooked and you start eating. When you go into a doctor’s office, they don’t demand payment before they treat your illness. However, the legal industry has a few factors that are unique. First, unlike the food/restaurant industry, the amounts at stake are much higher. If a diner skips out on a $20 dinner, the restaurant can likely stay in business. If a client skips out on a $5,000 legal bill, that attorney is going to have a significant shortfall. Second, unlike the medical industry, there is frequently no insurance. Meaning: There is no one to back up the client if they rack up a substantial bill. The attorney is counting on the client– and the client alone– to pay the bill. Third, the matters often handled by attorneys are serious. There are often large amounts of money at stake, there are significantly important issues at stake (e.g. child custody, prison time for criminal defendants, the survival of a company or business, etc). This all means that there may be a great amount of work involved.
“Why do attorneys charge so much for their hourly rates?”
Hourly rates vary quite a bit from one attorney to the next, based on geography, attorney experience, and practice type. However, the hourly rate for an attorney is typically always much greater than the hourly rate for a plumber, a therapist, or a nurse. There are several reasons why hourly rates for attorneys are so expensive:
The educational expenses involved in becoming an attorney are enormous. Attorneys have to undergo a minimum of three additional years of post-graduate schooling after college in order to practice law. Law school is expensive. The student loans from four years of college and three years of law school typically run into six figures. To put it another way, before an attorney even takes out an additional loan to rent an office, buy a phone, or hire an assistant, the attorney is over $100,000 in the hole.
Expenses of having a professional office. Law firms– like any other business– have expenses. Payroll (salaries for the attorney, paralegal, office manager, receptionist) and payroll taxes make up the bulk of most expenses. But there is also malpractice and liability insurance, health insurance, disability insurance, office rental, furnishings, office equipment, computers and technology, utilities, phone services, Internet and IT services, storage for closed files, Bar dues and membership dues, etc. Recently, marketing has also become a much greater expense for the typical attorney. While firms that cater to government or large companies may not have significant marketing expenses, the so-called “retail attorney” who has individual clients has to spend thousands or even tens of thousands of dollars simply getting their firm or name out into the public view.
The nature of billing for time. While a retail store that sells widgets has inventory, all an attorney has is time. The attorney’s hourly rate pays for much more than the salary of the attorney. The hourly rate pays for everything listed up above under “expenses.” Assuming that a given attorney wants to sleep, eat, and spend some time with their families, they have about 10-12 hours per day to work. With those 10-12 hours, they need to not only make enough money for their salary (yes, attorneys have mortgages, utilities, grocery expenses, and more), but they also need to pay for all their overhead detailed above.
The on-going educational expenses involved in the practice of law. Attorneys are required to attend seminars each year to stay current in the law. They are called “Continuing Legal Education” credits or CLEs. Most attorneys also have memberships in specialty organizations. An attorney can easily spend $10,000-20,000 per year if they really want to attend frequent conferences, subscribe to journals, order the latest books or software, etc.
What is the future of attorney billing?
This is an interesting question. As government and society become more complex with increased laws and regulations, attorneys are likely going to specialize even more in the future, and their rates will reflect this by increasing. However, there is also pressure from the demand of the Millennial generation to keep cost low. People today do not value advice. For a generation raised on the belief that Google can provide answers to medical and even meta-physical or religious questions, it’s difficult to convince them that they should have to pay for legal advice. Also, for a generation that believes there is little harm in stealing intellectual property (pirated games, software, music, and movies) that brings them entertainment, joy, and happiness, it’s very difficult for them to appreciate paying for something that does not bring entertainment, joy, or happiness. Who wants to pay for having to deal with a legal problem that they don’t think they should be in the middle of?
One of the most interesting developments is that some online attorney directories have successfully convinced attorneys to answer questions for free on their forums, in the hopes that this might lead to paying clients later. Unfortunately, what most attorneys have found is that it’s now a race to the bottom. There are now $25 estate plans and $399 divorce plans online, and there are paralegals who are quick to tout their services as a low-cost alternative to attorneys.
The future probably holds a middle-ground where attorneys do more work for flat-fees. It’s understandable that– in a changing world where many people (for better or for worse) believe that all intellectual property should be free– attorneys will need to adapt by explaining what value they offer by charging for their expertise and advice, and then placing limits on their fees up-front.