Category: Cash Flow – Finances

Lawyers’ responsibility for clients’ trust funds

Managing and accounting for client funds held in trust is a personal responsibility of the lawyer.  Although there are a number of good computer software programs to assist with trust accounting, including QuickBooks by Intuit, the lawyer who receives clients’ trust funds bears all the responsibility of accounting for every penny.  In an accounting sense, these funds are a liability of the law practice to the client, must be kept in an entirely separate account, and cannot be commingled with any other law firm funds. Recent challenges to the country’s banking system raise the specter of bank failures, with wide impact on the American public.  Lawyers, for example are the subject of recent inquiries because of their IOLTA trust accounts. 

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Paralegal compensation

A recent ALM Research annual compensation survey for Paralegals/Legal Assistants and Managers, suggested some interesting statistics. 

• Compensation increases averaged between 3 and 5%
• The highest paid paralegals are litigation support/technology managers who earned a median annual base compensation of $115,000
• The average billing rate for paralegals was more than $150 per hour, with rates for most positions exceeding $175
• Paralegal case managers in law firms averaged 1,642 billable hours, followed by senior paralegals at 1,530 hours

Many lawyers are still charging less than $200 per hour. Though faced with competition from other lawyers (and now paralegals), lawyers must fight to find ways to increase their fees, whether by the hour or otherwise. If they don’t, their economic well-being will be endangered.  In fact, recent statistics I saw in a California study says that 50% of California lawyers earn less than $100,000 and 50% of those earn less than $50,000. The scene is echoed in New York and elsewhere.

Like every other profession and trade and business, the practice of law is a business … That means we’re governed by the same formula:  P=R – E.  Profit (take home pay) equals revenue collected less expenses.
Remember the ABA study that opined that lawyers who billed 1,500 hours per year would earn a substantial income? Apparently, the standard today is between 1800 and 2200 hours of billable time. That doesn’t leave much time to eat, brush your teeth or say hello to your kids. And, of course, this does not include the hours spent on visioning the future of and operating your practice today as a business, which it is. 

We need to spend many hours tilling the soil if we want to advance, both professionally and economically.  "The grass is NOT greener on the other side." It’s just a different set of challenges.

High Compensation for Poor Performance

British CEO pay rose 287% in the last decade; private sector workers’ pay rose only 47% in the same period.  Workers’ contributions are measured; CEO contributions often are questionable and substantial severance packages are given even when corporate stock prices and earnings have decreased.  Under these circumstances, It’s hard to ask ordinary workers (who generally live paycheck to paycheck) to take cuts in compensation. (See June 30 article in USA Today.)

The U.S. corporate figures are similar, only bigger.

Now look at AmLaw 100. Are the numbers different? Not by much … When partners are earning in excess of $1,000,000, some in excess of $5,000,000, how can you complain about associates seeking $160,000? Because the firm will feel compelled to raise its rates to clients? Because some clients will resist? And the C-Executives complaining are earning how much? How many millions?

Sorry, but in this circle, there is little sympathy for the corporate client with those numbers who complains … This corporate client has options:  Why not engage regional law firms with equal skills and lower rates?  Is it necessary for large firm partners to earn such large sums in order to be at the table with CEOs as a colleague, not as a vendor, or can their expertise be sufficient to earn them the seat at the table?

Interesting difference, though, between law firms and corporate clients.  The corporation pays a high severance package while the law firm does not. Another difference is that the corporate executive is able to negotiate the very attractive severance package before entering his/her employment and the lawyer generally is not.

One day, I’ll create a listing of the differences between the C-executive and the lawyer. I think this would be very enlightening for us. But, that’s for another day.