The recent Depression (2008, not 1932) has dashed the hopes and expectations of many lawyers. A recent survey reported by USA Today in its March 7, 2014 edition says that 58% of those between the ages of 54 and 64 years of age will retire later than the originally planned.
Postponement generally comes from a reduction in the value of the assets that were to be used to fund the retirement and the fear that the current value of the asset pool (stocks, bonds, 401K, real estate, etc.) no longer will be sufficient to sustain the lifestyle of the retiree, given the extended life expectancy of our population.
There is another reason. As noted in the recently published book, Life After Law: What Will You Do With the Next 6,000 Days?, most lawyers don’t know what to do with themselves after they leave their practice. While the law practice has value, the price for the practice is seldom the issue … it’s what will I do with myself? Until you can answer the question of "what will I do" and "where will I go," one is likely to stay put. Only coincidentally, this postpones the time when savings accounts must be used.
The pressure is increasingly being felt by our Baby Boomers … sell the practice or "die in your boots." The latter option is not attractive and deprives one’s family of the money that could have been paid for the value of the practice before it (the practice) dissipates and/or the lawyer dies.
The Wall Street Journal, October 28, 2013, published some interesting statistics;
To meet basic retirement needs, one needs to save 8 to 11 times salary by the age of 67; if your annual income is $100,000, you should have saved a minimum of $800,000 by the time of retirement.
There are a number of “disconnects” in the statistics. For example,
• 69% of the people surveyed said they expect to work for pay after retirement; yet, only 25% do.
• Only 46% of retirees will be able to afford their essential needs in retirement; yet 78% of those surveyed expect to be happy in retirement.
• Of workers 55+ years of age, 54% said they thought they’d need $250,000, exclusive of house and pension, for retirement. Only 24%, however, said they had that. Sadly, about 1/3 of this group had less than $10,000 saved.
• Only 38% believe they will be able to afford “extras” (like travel) in retirement; yet 72% believe their dream retirement includes taking really nice vacations.
• 62% say they’ve done everything they need to do to prepare for retirement; yet 68% say they expect to work after they retire.
• Before retiring, when asked, only 29% said they were very confident of attaining paid employment once retired, 45% were somewhat confident. But, after retiring, only 7% said they were very confident and 21% said they were somewhat confident of finding paid employment.
Retirement age has increased since the 1990s, 57 years of age in 1993. Now, we’re at least 66 years of age. The later retirement age continues to build the nest egg … and one’s emotional health seems to be better with the later retirement age.
On retiring at the age of 65 today, the average life expectancy is another 19 years, meaning one may live 1/4 of one’s life in retirement. Hence, the title of my latest book, Life After Law: What Will You Do With the Next 6,000 Days? Planning for the “second season” is not something to be taken lightly.
In a recent article, the writer describes a twist in medical fees. A specialist, in this case a cardiologist, is charging a premium retainer fee for accessibility. That’s access, not treatment! The levels of service created by the cardiologist are $7,500 per year for “concierge” service, $1,800 for “premier” status, and $500 for “select” status. The differences among the levels range from priority to get an appointment to 24/7 access by phone or email. Medicare or private insurance still pays (or doesn’t) for the actual service. But this doctor says that Medicare reduces his billing rate and this is a way to earn the money he can and wants. This is brutally frank. But, as in other areas, economics control.
I had never thought of digital assets being inherited! Wow, what an oversight. Clearly, digital property is an asset and can be passed on to the next generation. Have you thought about the goodwill represented by your Twitter account, your blog, you website and all the other digital assets you create? If not, you should because but for an affirmative act on your part, the rights to that property may be lost.
Most lawyers will pooh-pooh the idea that their electronic/digital property is worth anything … they said this about the value of their law practice also. Many lawyers are beginning to adjust their thinking, recognizing that law practice goodwill has value … and together, this property could be worth tens of thousands, if not hundreds of thousands, of dollars. Why should this value evaporate? Take care and plan not only your estate but also the estate of your law practice, including digital assets!
Most of us can notice when something “isn’t right” with our bodies, and we often are quick to jump to a conclusion about the cause.Yet what we perceive to be the problem, and the reality behind it, may be much different.
A urologist recently shared an example with me, saying that many people come to him to “fix the problem” of an over-active bladder at night.They typically attribute it to a “plumbing” issue that a pill or even surgery can cure.Yet this doctor suggested that, as people age, they sleep less and they’re likely to be awakened more easily by sounds that didn’t disturb them in earlier years – a dog barking, the house creaking.Once they’re awake, they decide to honor the bladder urge so they can go back to sleep. The perception is that there is a physical medical problem.The real cause is the natural aging process and the best “cure” is to accept it.
Transfer this lesson to a law practice.Most lawyers are quick to perceive a problem when there is less money coming in the door.They immediately jump to a conclusion about “the cure” – do more marketing, or raise rates.The reality is that declining revenue typically began long before as a problem with receivables.Generating new work to cover declining revenue simply isn’t the answer.The strategy is to make sure clients know they must pay their bills within 30 days.And the way to do that is specify clear collection terms in the engagement agreement. Lawyers perceive every client as valuable and hate to cut them loose; the reality is that continuing to do work for overdue clients who don’t pay shows those clients are not worth keeping.
A new study by George Washington Law School showed that realization rates (the amount of money billed that is collected) average 83.6 percent for all law firms, a figure that is a historic low.If you perceive your revenue is down, and the reality is that you only collect 80 cents on the dollar, you’re like the urologist’s patients – you won’t get many good nights of sleep.
I’ve talked about a lawyer having an estate plan. I’ve talked about creating an estate plan for your law practice; this is an idea first generated by Ellen Peck, retired judge of the California State Bar Trial Court. Now, there is another estate plan to prepare: Digital.
What are you going to do with all your passwords, all your email accounts, all your accounts in social media and all your other accounts that reside in the internet?
Your virtual life doesn’t end just because you die. And in some arenas, the material you have on the internet cannot be removed or taken down. You may even have money residing in some of the internet residences such as PayPal, on-line gambling accounts, etc. Be sure to appoint or designate someone to be responsible for dealing with these issues. Be sure to write down all the accounts and passwords. And be sure to contact such companies as LinkedIn, Facebook, Google, etc. to comply with their policies.
There is little or no case law to date about planning for digital assets after death, and certainly no precedent of which I’m aware on this. But, for just that reason, it’s time to think about these issues.
In the Opinion section of today’s Wall Street Journal, two fellows from the Brookings Institute espouse their philosophy for deregulating the legal profession: Let anyone practice law; whether they’ve gone through law school or not, and allow anyone to own a law firm.
These are not new ideas, but the assertion that these ideas are the key to lowering costs of delivery of legal services is misplaced.
First, the licensing of lawyers is to protect the public; they are not there to protect the interests of lawyers. For example, an individual must be competent to represent and advocate for the interests of a client.It’s the same principle as licensing doctors.Incompetence either in court or in the operating room can cost people their lives.
Second, technology provides many avenues to reduce legal costs. Removing the licensing requirements has no impact on this issue. Yes, requiring a license does cost money and does cost time (opportunity costs for the student), but it also impacts the quality of services delivered … just as in the case of medicine (oh yes, and plumbing), etc. Why not remove licensing requirements for everyone in everything, from medicine, to plumbing, to driving a car. Licensing assures a minimum standard of quality. Licensing requirements in specific areas of human endeavor are society’s way of self-protection. Caveat emptor is acceptable, but not to the degree apparently desired by the authors of the Brookings report.
If lower legal costs are the objective, the argument should focus more on the pricing modalities as they impact the cost of legal services rather than the governance of the law firm. We’ve talked about this on previous occasions.
Third, the underlying premise that licensing provides an insurmountable barrier to entry and substantially raises costs by controlling supply might be true if one doesn’t look at the facts of recent and current reality. There are many more lawyers than the current demand can accommodate.Many lawyers cannot find work. Thus, it is illogical to suggest that licensing is the cause for higher legal costs. Those lawyers who are working often provide legal services at lower rates than they used to charge. Even large law firms find significant resistance to raising their rates. Are legal expenses high? Yes, but compared to what? How low should these prices be before they are acceptable? And, if there is no regulation, we might likely see larger law firms pattern their pricing after one another, just as the unregulated airlines currently do, so that the benefit of lower costs would not be evident.
There is no price regulation now in the airline industry. Yet, it’s remarkable how similar airline prices are. Yes, there are a few low cost airlines such as Southwest. And, yes, there are also lower cost law firms as we sit here today, even with the regulations we have in place. The only benefit of the authors’ "non-licensing" proposal would be the destruction of minimum standards of quality. Caveat emptor might be acceptable if the public had a way of knowing what the quality standards should be … but they don’t and they won’t.
Combining other skills such as accounting into one organization (the old "multi-discipline" argument) is not required … many law firms already work closely with allied professionals for the benefit of clients. This is merely a non-issue.
Dewey, which went into Bankruptcy Court last night, did not fail for lack of credit. The firm had been extended bank lines of credit. It failed for lack of effective management. It’s unlikely that investors or others would have given Dewey more money if they understood the true nature of the firm’s economics and governance. Thus, this is also a non-issue for the authors’ arguments.
In sum, law firms function no differently from all other businesses. Good, solid business decisions must be made to attract customers/clients and operate cost-effectively. Dewey failed on both counts. The arguments put forth by the authors would not have changed this outcome. But, in the terms of business, by going into bankruptcy, the firm may be able to disgorge its unfunded pension obligations and become a viable candidate for acquisition by another large firm.That’s when the principle of caveat emptor really comes into play – as a normal risk that businesses take every day.
Once again, it is confirmed that law practice is a business. As I’ve been saying since I received the registered mark for The Business of Law®, law practice is a business. Yes, it’s a profession AND also a business, a service business. Dewey & LeBoeuf confirms this.
This large, national law firm has just retained outside bankruptcy counsel. Why? To consider whether they can create a controlled bankruptcy … filing a bankruptcy application with creditors and potential acquirer already in place. The beauty of such a filing is that it will i) stop the bleeding of lawyers leaving the firm a few at a time, ii) eliminate the unfunded pensions that would be a drain on the firm assets and future revenue, and iii) enable another firm to complete an outstanding acquisition quickly with a clean balance sheet and revenue stream intact. A side benefit of eliminating the unfunded pension obligations would be to avoid generation warfare that frequently arises between retiring partners and younger partners left with the responsibility of using current revenue to pay for the old debt.
This process is precisely the same process used by so many other companies, including some of the large companies in the recent financial crises that survived, but in different configurations. This is the same process as the airlines are implementing today … to reduce their obligations to labor. This is the same process being contemplated by a number of prominent government entities (cities and counties) to get rid of their unfunded pension obligations that are expected to require more than 60% of their current tax revenues.
So what is different about Dewey? Nothing. We are in the world of business, The Business of Law®.