Changes for the Lawyer Referral Service
At its June (2011) meeting, the Oregon State Bar’s Board of Governors (BOG) approved the development of a new funding model for the bar’s Lawyer Referral Service (LRS). The decision to move forward with this change came about after many months of discussion amongst the BOG, bar committees and outside experts. A record of these discussions can be found in the following archives from previous BOG meetings (Note: some of these files are large and may take several minutes to load): June 2010 Agenda; June 2010 Minutes; Nov. 2010 Agenda; April 2011 Agenda; April 2011 Minutes; May 2011 Minutes.
It is the board’s hope that the new revenue model will enable Referral & Information Services to be self-sustaining within the near future. Bar staff are currently working with the Public Service Advisory Committee to develop the program details, which are anticipated to go into effect in the 2012 program year (July 1, 2012).
1. What exactly is a percentage fees revenue model?
A percentage fee system is one in which a panelist who accepts a fee-generating case returns a portion of the fees collected to the referral service. Percentage fee systems in effect spread program costs proportionately, with greater contributions from those panelists who most benefit from their participation. In addition to generating revenue, the other main advantage of a percentage-fee system is that only those who choose to participate, and financially benefit as a result, will pay anything beyond the basic registration fees. The vast majority of state and local bars with an LRS have adopted a percentage fee model; most break even and some even do better than break even and are able to reinvest in operations or contribute to pro bono programs, but none have reverted back to a registration fee-only model.
At its June meeting the Board of Governors approved development of a percentage fee model for LRS. The board directed bar staff, with assistance of the Public Service Advisory (PSA) Committee, to draft new policies and procedures for LRS that address operational and administrative issues identified by the BOG and PSA Committee. The board further directed the Executive Director and, as needed, the board’s Policy & Governance Committee to proceed with any necessary changes to OSB bylaws, bar policies and the Oregon Rules of Professional Conduct.
2. Why now? And, why is this happening so suddenly? Shouldn’t the Board of Governors take more time to study this change?
For the past two years the board has been reviewing all of our programs, essentially engaging in a cost/benefit analysis to determine what should be expanded, modified or eliminated. As a guiding principle we are looking for maximum impact at minimum expense.
Last year the board discontinued our Leadership College, consolidated staffing in some areas to reduce overall FTE, reduced travel expenses (especially board) and eliminated many printing and postage items. The most difficult and controversial of these decisions was elimination of the traditional print membership directory.
The most complicated and difficult issue the board has taken on this year is funding of the LRS. Although the service collects registration fees from lawyer panelists, the program has been subsidized by the bar’s general membership every year since its inception in the 1970s. The program’s average annual shortfall runs about $275,000, and is simply not financially sustainable. The BOG considered raising panelist registration fees but concluded that option was both inequitable and unlikely to move the program far enough towards financial self-sufficiency.
3. Wouldn’t it be easier and just as effective to raise the panel registration fees? Why can’t the LRS just increase registration fees to break even?
It would certainly be easier, but it wouldn’t be effective or equitable. Registration fees impact all panelists equally, without regard to benefits received in return. Some panelists rarely get a paying case while other panelists do quite well. In addition, increasing registration fees causes attrition and registration revenue fails to increase or decreases because lawyers leave with even modest increases.
The board was also concerned that high registration fees would make it difficult for new lawyers and many solo practitioners to join the program: an increase in registration fees creates a barrier to entry for less experienced lawyers, and causes lawyers to pay regardless of whether the referrals are successful or not.
Finally, in other jurisdictions, registration revenue remains a baseline source of revenue, but does not constitute the majority of earned revenue and does not provide sufficient revenue in order for the LRS to be self-sufficient or break even.
4. Can’t the LRS collect and keep the $35 consultation fee currently collected and kept by LRS lawyers?
From other jurisdictions the BOG learned that if the consultation fee is collected by the LRS, calls will take longer to complete because credit card information is collected and charges processed at the time that referrals are made. This can increase phone expenses and the number of abandoned calls due to longer wait-times while callers are on hold. In turn, less referrals will be made to the participating panelists.
And, if collected by panelist lawyers, the LRS still devotes administrative time and incurs processing costs in order to capture this revenue. Of the three revenue sources registration revenue, consultation fees, and percentage fees consultation fees often generate the least amount of revenue for an LRS. In order to remain competitive, the amount of the consultation fee charged is decreasing and more LRS programs are eliminating consultation fees altogether.
Finally, from preliminary focus groups conducted, some panelists have indicated that they do appreciate receiving the $35 and cannot afford to offer free consultations.
5. How many lawyers will leave the LRS if Referral and Information Services adopts a percentage fees revenue model? Aren’t you afraid of losing a lot of lawyers -- won’t you lose money if a bunch of lawyers quit the program over this change?
Most LRS’s report losing 10-20% of their lawyers when a percentage fees revenue model was first implemented. However, almost all LRS’s reported that they regained the same amount of attorneys within 1-2 years of implementing a percentage fees revenue model.
We will likely lose money in the first year but after that revenue should steadily increase. In a percentage fee model, revenue is dependent on the number of clients you serve, not the number of lawyers you have registered.
6. Where can I find details on how this will work?
Bar staff and advisory committee members are currently working to develop policy details with the input of current LRS panelists. In the next few weeks LRS panelists will be surveyed on many of those details, and panelist “focus groups,” which started last year, will continue. In those early discussions current LRS panelists have offered a number of suggestions, including improving LRS operations in various ways and financially supporting other access to justice efforts. For complete background on the board’s work to date you can review the board’s meeting agendas and minutes linked to above. The special meeting agenda for June 2010 includes a comprehensive backgrounder on LRS percentage fees.
7. What percentage fee model(s) do other LRS’s implement in order to break even or earn revenue above and beyond the amount necessary for the LRS to break even?
Most LRS’s that have a 15% percentage fee revenue model are able to break-even or sometimes earn revenue in excess of operational expenses to reinvest in operations, e.g., increase advertising on behalf of participating lawyers.
LRS’s that institute a 10% percentage fee revenue model are sometimes able to break-even, but seldom earn revenue in excess of operational expenses.
8. How many other states’ LRS’s utilize a percentage fees revenue model?
Approximately 80% of states have adopted a percentage fees revenue model.
9. Won’t the public disapprove of the LRS receiving part of the funds collected from the client? Won’t percentage fees make the bar look bad?
This has not occurred in other jurisdictions. In those jurisdictions, the public understands that funds are necessary to keep the LRS and other programs, e.g., a Modest Means Program, in existence.
10. Why would you even consider taking a percentage of low-fee cases and $35 consultations?
We’re not. The board has no plans to apply percentage fees to initial consults or other small matters. In addition, we may expand the Modest Means Program to cover more areas of law and encourage broader participation. Percentage fees will not apply to the Modest Means Program, which also does not charge panelist registration fees. We are also looking to create more distinction between the LRS (regular fee) and Modest Means (low fee) programs.
11. Won’t the ethics rules require clarification? Isn’t this in violation of ethics rules on fee sharing?
These concerns have been extensively reviewed by the bar’s Public Service Advisory Committee and Legal Ethics Committee. We are currently looking at whether Oregon RPC 7.2(a) should be amended to clarify that it does not prohibit percentage fees to non-profit referral programs. Collection of percentage fees is ethical in many other states, and approximately 80% of other states have adopted a percentages fees revenue model.
12. Wouldn’t implementation of a percentage fees revenue model greatly increase the amount of administrative work each lawyer has to do?
Our intention is to keep the process as simple as possible. While the periodic reporting possibilities are still being researched, it does appear that the process will be less piecemeal than it is currently, e.g., receiving a list of referred cases and responding whether the case is open/closed/pending, etc., instead of a separate email for each referral.
a. How often would the lawyer have to report back on cases that the LRS referred?
This is still being researched and discussed. Monthly reporting is quite common.
b. Who does the accounting?
The LRS software will provide the lawyer with the amount owed as a percentage fee remittance.
c. What happens if the lawyer bills the client, but only gets paid some or none of the outstanding balance? Does the lawyer still have to pay the LRS?
The lawyer will pay percentage fee remittances on the amount earned and collected, not the amount billed.
13. Is the entire amount earned and collected subject to the percentage remittance?
Some LRS’s have a threshold below which no remittance is paid to the LRS. This is currently being researched and evaluated, and will be discuss with panelist focus groups this fall.
14. How are confidential settlement amounts handled? Does the LRS have to know how much the settlement was for and, if so, how is that not in breach of the settlement agreement?
LRS’s from around the country have rules governing this situation. Our LRS rules will be modeled on these common rules. For LRS-referred cases, the LRS will be entitled to know the monetary amount of the settlement and will be identified in the settlement agreement as being entitled to receive such information. This has not presented any problems in other jurisdictions with percentage fee revenue models.
15. What’s to stop a lawyer from increasing his/her hourly rate to compensate for the “new” amount owed under a percentage fees revenue model?
This is not permitted under existing model rules for LRS’s with percentage fee revenue models. This practice and others, e.g., increasing expenses, is grounds for dismissing and/or barring the lawyer from participation in the service.
16. When will this take effect?
The target implementation date is July 1, 2012. Note that LRS runs on a July-June program year; none of the considered changes apply to the program year that just began.