Taking the Reins From “Big Law”

Why smaller firms and boutique shops have the advantage in the T&E space

Despite the benefits and prestige that come with working at a top U.S. law firm, small and mid-sized firms, as well as boutique offices, offer trusts and estates lawyers a much more attractive proposition.

Lawyers moving to these smaller platforms no longer have to deal with big law firm metrics—including cost justifications and performance pressures—and they’re in an atmosphere where their colleagues understand and value their practice.

“The future is in boutique firms or smaller firms with larger [T&E] departments,” says John Barnosky, a T&E lawyer with the New York firm of Farrell Fritz.


The Future of the Practice

As early as the 1980s, there have been ongoing discussions regarding the future of T&E practices at big law firms. These firms have grappled with the differences between trusts and estate practices and those more profitable departments servicing primarily corporate clients.

Additionally, changes to the tax code and regulatory proposals on gift taxes under President George W. Bush further increased questions on the long-term profitability of T&E practices.

 “T&E practices don’t generate the kind of income that a finance or mergers and acquisitions practice does,” says Joel Dobris, a professor specializing in trust and estate law at UC Davis School of Law, in Davis, Calif.

But while there’s a lot less tax planning than was needed in the past, because of wills, wealth transfer and other estate matters, this is an area of law that everyone needs, says Gerry Beyer, professor, Texas Tech University Law School in Lubbock, Texas.

“Forget the tax issues, there’s going to be a lot of work in the transfer of wealth of baby boomers,” says T&E lawyer Fred Tansill of Frederick J. Tansill & Associates in McLean, Va.


Billable Hours

Yet, that inability to keep up on hourly billable hours has been at the heart of many recent departures of T&E attorneys from “Big Law” in recent years. Most recently, Debevoise & Plimpton moved to cut the eight lawyers who made up the firm’s longstanding T&E practice.

Big U.S. law firms—especially those with international offices in expensive foreign cities—rack up extraordinary overhead costs, spending big on staff, backend technology platforms and data security and storage.

The increasing business costs, as well as narrower profit margins since the financial crisis, means that firms are putting more pressure on their lawyers to generate more work at higher rates.

“The economics of big law firms means they have to charge grotesque hourly rates,” Tansill says. And this is where “Big Law” T&E practices struggle. Instead of embracing a flat free structure that’s best suited for most estate planning and tax work, many major firms instead rely heavily on expensive hourly rates.

 “The hourly rate practice—as it exists now—isn’t conducive to T&E practices,” says Louis Harrison of the T&E boutique firm of Harrison & Held in Chicago. “You can’t bill a mom and pop client the same way you can bill IBM.”

Unlike a litigator who can juggle hourly rates by billing clients for the many associates and paralegals needed for such time and labor-intensive processes like discovery, a T&E lawyer can’t get all that “vertical billing,” Tansill says.

Instead, many clients want to work exclusively with one or two experienced lawyers, rather than trust matters to a team of lawyers and staff, which leads to higher rates that clients aren’t always willing to pay.

“This is coming out of their pocket, not a legal budget,” says head of McDermott Will & Emery’s private client practice Carol Harrington. The difference between billing an individual high hourly rates and billing a corporate client puts a lot of pressure on the estate-planning department to stay relevant amid their peers, she added.

McDermott—which has 70 T&E lawyers—takes advantage of its sizeable practice and the shared expertise among its attorneys to lower the costs in a profitable way, Harrington says.

McDermott’s estate-planning practice also benefits from the historical importance that’s placed on tax lawyers at the firm. Edward H. McDermott and William M. Emery established the firm in 1934, and one of the very first practices was the firm’s tax practice.

Despite McDermott’s successful T&E practice—one of only a handful of big law firms recognized as a strong and still dominant player in the field—Harrington agrees that T&E practices operate differently from clients serviced by the corporate or others such as white collar practices, Harrington says.


Benefits of Smaller Sized Firms

But while firms like McDermott offer their clients the full service experience, Harrington says that there’s still a significant draw toward the small-to-mid-sized firms and boutique shops.

“With the smaller firms, the collegiality is there,” Barnosky says. Boutique firms, as well as those with a substantial T&E practice are much more likely to give lawyers the professional support they need because everyone is on the same page, he says.

And in contrast to the importance big firms place on their full service offerings and the ability to send related client matters in-house, Harrison says his firm has no problems sending work out to other firms.

In fact, Harrison considered the freedom of choice an advantage, saying that in a boutique setting, the firm was able to pick and choose the best option for clients, rather than being forced to keep matters in-house.

Additionally, the smaller firms and boutique platforms not only provide more flexibility in the choice of service providers for clients, but also, lawyers usually have more say in the business decisions as well.

For example, smaller firms are able to adjust to the changing markets and technology faster, Harrison says. While a big firm with 1,000 employees may take months to research and roll out new smartphones or video conferencing advancements, a smaller boutique firm may do the same in only days or weeks.

In the end, many lawyers actually end up making more money at a boutique, Tansill says, citing the ability to keep more of the billables because of the lower overhead costs.

Yet, it’s not only the lawyers that may be happier without big law; many individual clients are happier as well. Since the financial crisis, many clients—including high-net-worth clients—have pushed back against high legal bills and expensive hourly rates, Tansill says.

In an informal survey of T&E lawyers in Northern California, Dobris found attorneys charged clients between $275 and almost $800 an hour, with some charging $1,000 an hour.

“Bigger firms are asking for a lot of money that the smaller firms don’t dare ask for or don’t feel the need to ask for,” Dobris says. But at these rates, lawyers have told him that clients really need to have a lot of money or complex problems for attorneys to charge expensive rates, otherwise the clients get angry.

Because of the importance of client satisfaction within a T&E practice, many lawyers have looked to smaller firms to gain more control over their hourly rates, a trend that’s unlikely to stop.

In the future, a few big players will dominate the T&E space—less than there are now—and there will be a lot of small firms and attorneys at boutique shops, Harrington says.


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