Single-family offices are amazing potential clients for high-caliber trusts and estates lawyers, as well as a great many other types of lawyers, such as corporate attorneys. They have extensive and diverse legal needs, financial resources and the motivation to pay for exceptional talent.
All in all, the demand for legal services by single-family offices is tremendous. It is also important to note that in a worldwide study of 352 single-family offices, about 85% outsourced wealth planning services in part or in total.
One of the big points of contention between lawyers and single-family office executives is their fees. It is predominantly about the amount of the fees. However, single-family office executives are very willing to pay well for value.
“Single-family offices strongly prefer paying value-added project fees for legal expertise," said Angelo Robles, founder and CEO of the Family Office Association and author of "Effective Family Office." "This way, senior management of single-family offices sets the parameters for the engagement, including establishing the upper limits on cost. Determining the project fees is regularly done in conjunction with the lawyers. Of course, if the parameters change, then the value-added project fees change.”
The root of client dissatisfaction with time plus expenses billing is usually not the cost of legal services per se, but the cost in relation to the perceived value delivered. Our research has shown that only a modest percentage of wealthy clients, including those running single-family offices, say that their lawyers' rates are too high. Keep in mind that the wealthy knew the hourly rates when they engaged their lawyers and, had they felt that the rates were out of line, they could have opted for a less-expensive option.
The difficulties do not arise from the hourly rates themselves. The difficulties arise when the hourly rates are multiplied to produce the final fee. In effect, the general consensus is that trusts and estates lawyers are charging them for too many hours. This situation is complicated by the fact that the wealthy tend to not have a very good idea about what the private client lawyers are doing or why it takes so long.
At first glance this might seem like bad news for lawyers. Many of them argue that value-added project fees will result in lower revenues than time-plus-expenses compensation arrangements. This view is usually substantially inaccurate. In actuality, value-added project fees open a set of attractive new possibilities for lawyers, whether they specialize in trusts and estates or other areas.
The use of core compensation metrics, combined with perceived contribution analyses, can be employed to design value-based fee models, leading to higher earnings because of premium pricing. It is also necessary for private client lawyers to effectively communicate the value of the legal services they deliver. Doing so is a function of focusing on benefits and outcomes as opposed to costs.
Russ Alan Prince, president of R.A. Prince & Associates, is a consultant to family offices, the ultra-wealthy and select professionals.
