Running a law firm has its fair share of benefits and challenges. One of the difficulties that most attorneys face is getting new clients. The acquisition of new clients with cases in line with your area of specialization is a perfect fit and is also manageable takes substantial effort and other resources. It can take a lot of time. As a matter of fact, attorneys worldwide spend more than 1 hour daily in efforts to build networks among themselves and meet prospective clients.
If you take into account the resources needed to find and bring onboard new clients, it would be wise to accept referrals from attorneys. This can be an extremely effective and efficient strategy that can help grow and expand your law firm.
However, before you can get a referral, it’s important you sign an attorney referral agreement.
When is there need for referral agreement?
Establishing new networks with other attorneys can play a significant role in the quest to get new clients and also bring in more money. However, sending them back and forth is not enough. There is so much more that ought to be done.
Depending on your state/ country, there may be the existence of stringent rules that govern the referral of clients between attorneys and the number of fees to be paid. Usually, there are rules that prohibit attorneys from making payments for referrals, unless fees paid are in line with the exceptional rules.
Preparing a formal attorney referral agreement can help create new relationships, and make sure that there is transparency and accountability in case disagreements arise.
How to Get an Attorney Referral Agreement Right?
Getting this contract right is not as easy as many people think. Creating an attorney referral agreement that aligns with the applicable rules and regulations allows you to clearly define the number of fees due, division and specialization of labor as well as duties and responsibilities of each party. This should happen from the onset.
An attorney referral agreement helps to sketch out roles that each party must play and expectations. It plays an instrumental role in preventing future misunderstandings.
Furthermore, it is imperative to find out if there are specific rules prescribed by local governments regarding attorney referral agreements between lawyers.
Best Practices for Successful Attorney Referral Agreements
Given that all attorneys in such an agreement carry joint responsibility, there are several benefits and risks associated with it. The following are techniques that will ensure everything turns out smoothly.
- Have clear expectations: The attorney referral agreement must clearly spell out the specific deliverables by each party.
- Clearly define the number of referral fees to exchange hands: The fees can be a specific amount or can be a fraction of the whole amount paid by the client.
- Refer to competent attorneys: The party that you refer the client to must have the required skills, abilities, and experience. Don’t disappoint the client simply because you want an attorney friend to make some money.
- Pay the requisite fees: It would be unfair to let another lawyer do most of the heavy lifting, only for you to keep all the money received from that client. To avoid this temptation, it would be helpful to notify your client about the receipt of fees from the client at the earliest opportunity.
Payment of Referral Fees
Away from rules that govern attorney referral agreements, it is important for attorneys to keep proper records of all transactions, including the amount of money paid by the client and the fraction (if any) that was shared with the referrer.
When the referrer is legally required to receive payment, for instance, it is mandatory for that money to be banked into a legitimate trust account distinct from the accounts of all the parties involved.
The receiving attorney must keep that money safe, inform the other party about the receipt of that payment, deliver the fraction owed to the other attorney and also keep good records of all other transactions related to that deal.
Attorney referral agreement fees: what is allowed, and what is prohibited?
Many lawyers turn down offers for payment of referral fees because of one major reason- to avoid trouble with the law. The tendency to keep trouble at bay is great, particularly if there is improper understanding with regard to what the law allows and what it prohibits.
It is important to note that rules governing the payment of fees vary from one legal jurisdiction to another. However, the following generally apply in most states/ countries across the globe:
- An attorney is prohibited from sharing fees with parties who are not lawyers.
- An attorney is not expected to offer anything valuable to another party for referral services.
- An attorney must not refer a client to a colleague who, to the best of their knowledge, is incompetent. This means that referrals must only be directed to a party who is known to possess the requisite skills, abilities and experience.
On the other hand, there are specific exemptions to the rules that govern attorney referral agreement fees.
- Distribution of fees must be proportionate to the nature of services rendered by each party. Each lawyer must take up responsibility for the clients’ representation.
- The client must be in agreement with the referral arrangement. The client must also be in agreement with the share that each party would receive, and confirmation of this must be made in writing.
- Total amount of fees demanded from the client must be reasonable and commensurate to the nature of legal services provided.
Example of a case where payment of referral fees is permitted:
A start-up law firm has only two partners but no associates. The two partners discover that the legal work available exceeds their capacity, so they get into an agreement with a larger law firm wherein they refer some cases to it. The two partners agree to take care of specific elements of those cases. The larger law firm agrees to take care of the rest.
The clients give consent to this special arrangement. They also consent to all related costs. All this is done in writing, and all parties append their signatures.
Attorney Referral Agreement Templates & Examples
Preparation of a comprehensive attorney referral agreement can be time-consuming. It also needs a lot of expertise. Even with the requisite knowledge and time needed to prepare one, it is possible to leave out important details.
To avoid all this trouble, why don’t you download a template from our website? It has been prepared by a team of distinguished experts, so you can be sure of getting value for money!
There are lots of misunderstandings regarding attorney referral agreements and the associated fees. For instance, many people are unable to draw the line between what the law allows and what it prohibits. This is a comprehensive guide that focuses on such arrangements when they are needed, and why. It also provides answers to pertinent questions that you may have.
Frequently Asked Questions
Why do I need referrals from other attorneys?
The legal industry is very competitive. For this reason, getting new clients may be difficult, especially if you have just opened shop. Therefore, those who have been in the game for longer can refer clients your way.
Am I expected to pay any fees to those who refer new clients to me?
This depends on several factors. Firstly, you must only share fees with referrers who are attorneys. Secondly, laws of that land must permit payment of referral fees. Thirdly, the client must give consent to this.
What are the benefits and drawbacks of this arrangement?
One of the advantages of such a pact is that you can get new clients without necessarily breaking a sweat. Another advantage if that the client would have confidence in you because of the recommendation by another party.
One of the disadvantages of this arrangement is that you may end up with a case that is too complicated, and the case may consume substantial amount of resources. You may even fail. Additionally, it can be difficult to turn down cases that have been referred to you.