When I joined a semi-prestigious Long Island law firm (sorry, Lois) after spending over 9 years as an attorney for third party administration (TPA) firms, I thought I could develop a solid book of business in the single employer retirement plan area. When I left the TPA in question about a year earlier, I learned that they raised the amendment fee from $475 to $600 because I was replaced by two attorneys and a paralegal. So when all plans had to be amended to conform to the new Internal Revenue Code Section 415 regulations, I saw an opening.
I proposed to send letters to all of my previous clients at that TPA and offer to do the 415 amendment at 50% off, $300 than what the TPA was charging. I thought by getting these clients for a $300 amendment, I could eventually parlay that to the plan restatement work that were going to have to be done by 2010.
When the managing attorney and her law firm administrator/lackey reviewed my proposed letter, they took the Advertising Committee’s suggestion that they take out my reference to a $300 amendment fee and just state that I would do the amendment in a cost effective manner. They claimed that I could not guarantee the fee (even though the amendment could be done by mail merge) and they felt that form of advertising cheapened the firm’s image.
Of course the letters went out, omitting the $300 reference, and stating I would do the 415 amendment in a cost effective manner. So when a plan sponsor gets a letter from their TPA that they will do the amendment for $600 and a law firm stating they would do the very same amendment in a cost effective manner, who do you think plan sponsors thought was less expensive? Needless to say, 700 letter, 0 clients.
That is the stigma of an ERISA attorney. People think we cost too much, so small to medium sized employers stay away from ERISA attorneys in drove. Same with financial advisors, they try to steer their clients away from what they think is an unnecessary expense, especially when TPAs can offer plan documents at a cost far less than what most law firms should charge. The stigma is justified because I believe that the billable hour can be a dangerous weapon used to overcharge plan sponsors for ERISA work. One of the main criteria to judge the effectiveness of partners and associates in a law firms are billable hours. Networking, writing articles, developing relationships with TPAs, and RIAs were hours that I can never bill, so billable hours can be an incentive to overbill.
So when I started my own law firm, I wanted to take what was the best from law firms and TPAs, and eliminate what I didn’t like. What I took from TPAs that I liked was the flat fee approach to plan documents. So I charge $2,000 for a plan and I charge $750 for a plan tune-up. I don’t charge for mail expenses or a photocopy or for phone calls, a flat fee is cost certainty and clients see a value to it. I charge $1,000 to rewrite a TPA or RIA’s service agreement to comply with Section 408(b)(2). What I took from the law firms that I liked was the professional service affording a client-attorney relationship that the TPA legal department can never have. What I didn’t like about both the TPA and the law firms was the transparency of fees. Some TPAs don’t practice that and most law firms don’t, they quote the billable hour and that’s it.
I had the pleasure of referring a TPA client to Marcia Wagner’s office for an outside opinion on multiple employer plans. Marcia’s office quoted a flat fee and delighted the client because of the work product and the certainty of the fee. There was no sticker shock; the client knew what they were getting and the fee that they were paying. I am glad I’m not the only ERISA attorney doing that.
ERISA attorneys talk about so much about fee transparency for retirement plan providers, yet so many don’t practice what they preach. Plan sponsors and their advisors are hesitant in using them and there is a good reason for it. I remember an RIA who told me of the ERISA attorney who blew through a $100,000 retainer in reviewing the plan and the service providers. The client wasn’t Exxon-Mobil or Apple. Legal representation from an ERISA attorney shouldn’t be so cost prohibitive for small to medium size employers and I’m trying to prove that every day. I try to cultivate relationships with advisors to help them pursue business or offer to speak at their events for free. Why? The retirement plan business is a relationship driven industry and because I believe that since financial advisors are the gatekeepers to plan sponsors, smarter retirement plan advisors will lead to better retirement plans.
People who live in glass houses should never throw stones, so ERISA attorneys should be transparent in the fees that they charge and what the suggested cost of their work should be.
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