Through my experience in the 401(k) industry, I have been a firm believer in fee transparency and providing value to retirement plan sponsors. I also carry that same belief in my law firm practice by flat fee billing all my retirement plan documents, while only using the billable hour for IRS and Department of Labor audits.
I always jokingly state that my clients and their financial advisors love me, law firm managing partners not so much. If you met my old law firm’s managing partner, then you certainly know that to be true. She never understood my practice, the value I provided to my clients, and how I was marketing myself to financial advisors in helping with their clients. A perfect example is when I joined the firm in 2008 and I wanted to solicit the business of my old TPA’s plan document clients. When I left my old TPA, they replaced me with 2 attorneys and a paralegal, so they raised their plan document fees by at least 25%. A boilerplate required IRS amendment for the Final 401(k)/Final 401(m) Regulations prepared by my old TPA was $600. I wanted to solicit my old clients and do the amendment for $300. My reason for doing the amendment for half what the TPA was charging is because I wanted to show value for these old clients and because it would give me the opportunity to do these EGTRRA restatements a year later. I thought it was a can’t lose situation.
My law firm’s managing partner and the advertising committee (which consisted of an associate who drew no business) stated that I should not advertise price and just state to my old clients in a solicitation letter than I can draft the amendments in a cost effective manner. When you get a letter from a TPA that says they will draft an amendment for $600 and a law firm states they will draft the very same amendment in a cost effective manner. Who do you think is cheaper? As we know, law firms are not known for providing low cost legal services, especially with fancy offices and 5 employees in billing. Needless to say, I didn’t fetch one client out of more than 600 solicitation letters.
The only reason that I am able to represent small to medium size retirement plan sponsors and work with their financial advisors to cut down their administrative expense, minimize their liability, and help maximize their retirement savings is by providing a value to my service. I can only provide a value to my service by charging a flat fee. Chief Justice Marshall stated in the Supreme Court case McCullough v. Maryland that “the power to tax is the power to destroy.” I think the power to bill by the hour is the power to destroy because the legal bills can be limitless and encourages overbilling plus a law firm can also charge other incurred expenses like photocopying, binding, and postage. Small to medium size plans sponsors would reject my services and use the plan document services of the third party administration firm (which offer no independent attorney-client relationship).
So in a nutshell, an ERISA attorney like a TPA needs to provide a value to their clients at a fee that is transparent and can be easily understood.