Fee Transparency

Fee Transparency – Opportunity or Threat?

Cartoon referring  to a low cost airline with the caption "Welcome to our cramped seat, no meal, fight over the luggage flight" How does this compare to fee transparency?

Since December 2018, Lawyers in England and Wales have faced the challenge of fee transparency. They’ve had to publish their fees for certain types of work on their website. These include, amongst other things, fees for residential conveyancing, wills and probate. Whilst this regulation hasn’t yet reached Scotland, last year, the Law Society of Scotland published a consultation into this requirement (you can view that here). Given that this has been warmly welcomed by the Scottish Legal Complaints Commission (you can read that here) and consumer groups, it’s likely to come into effect just as it has in England.

Some will argue it’s a good thing, others that it’s a bad thing and that there’s no such thing as a “standard” transaction or case. It might well lead to a race to the bottom where the question of “how much?” is the only governing factor with those publishing the cheapest fees winning all the business – or not.

You see, whilst many will view this as a threat, others will see it as an opportunity. It’s an opportunity to review how fees are calculated.

How do the “low cost” conveyancers survive?

For many years now, in Scotland, high street solicitors have charged fixed fees for residential conveyancing. They bemoan the fact that they can’t charge more because “that’s all the market will stand”. However, the “low cost” conveyancing firms have been practising fee transparency for years. They publish their fees on their websites and they’ve not gone out of business. The question is how they do it when others struggle to make ends meet even though they apparently charge higher fees.

Strange as it may seem, the answer might be in the approach “low cost” conveyancers take. Yes, they do charge what is clearly a low price – but that price is for the absolute basics of the transaction. It might cover creating and concluding the bargain, examining the title, preparing the disposition and standard security and settling the transaction – but that’s it. If there is anything else at all that’s outwith these core steps it immediately becomes chargeable. Each and every single item outwith the basic package is chargeable. This means despite offering a “cheap” fixed fee, the actual final fee is much more because of the “additional” work carried out.

I know many solicitors who frown on this practice. However, if those very same solicitors encounter a problem in a transaction, they end up doing more work to fix the problem for no additional charge . Essentially, this means working for nothing!

Lessons from the airline industry

Let’s consider the airline industry. There was a time when there were few airlines and they could charge whatever they wanted. Things changed when “no frills” airlines came along. EasyJet and Ryanair adopt a low cost, no frills approach and we know how successful they are. It might not be the best flying experience, but they’ll get you from A to B (most of the time) with little fuss and definitely no frills! And they practice a kind of fee transparency with gusto – just watch their TV adverts!

The full-service carriers claimed low cost carriers would never survive – and ever since they’ve been playing catch up or have ceased to exist.

It’s interesting to see how, say, British Airways dealt with the competition. It doesn’t see itself in the same space as an EasyJet and Ryanair. It sees itself as a step above for the “ordinary” passenger and a very large step above for business and first-class travellers.

BA offers passengers the choice of Economy, Premium Economy, Business and First Classes on its continental and transatlantic flights. If you want to get to your destination as cheaply as possible – fly economy. When you want more comfort – try Premium Economy – you pay a little bit more and get a wider seat with longer leg room, china dishes, metal cutlery and a choice of menu. If you decide to pay more, you can fly business class which will give you, on long-haul, a seat that turns into a bed and your own “space” – like a little “pod”. There’s priority boarding, choice of meals, complementary drinks and the like. First class is the most expensive, delivering a very personal service. It’s a bit like being in an expensive hotel flying through the sky with people fussing over you!

If you want to charge more, you need to differentiate

The point about all of this is that British Airways has differentiated itself from the low cost/no frills carriers. And they, like the low-cost carriers, practice the equivalent of fee transparency when they advertise their prices. BA doesn’t see itself as trying to attract the low cost/no frills traveller. For those who like a little bit or a lot of comfort, it has an offering for those travellers too. Interestingly, we’re beginning to see the low-cost carriers offer a range of fares for some “essential” little extras!

In the legal world, there’s nothing stopping solicitors from looking at their service offering. You can look to provide the basics – every firm has to get the basics right – and set a cost for that. You can then adopt the low cost/no frills option with add-ons for each additional issue or problem you need to address. This means that the final fee is uncertain. You may think most clients don’t want to go into a transaction facing uncertainty over the costs. However, that’s what they currently do when they engage a low-cost solicitor – only they don’t always appreciate it.

What are the alternatives?

Alternatively, you could offer a premium service where you provide the basic service but also include some of the problem issues that regularly appear – and you’ll deal with these without adding on extra charges for a higher basic fee, or course. Over and above this, there would be some other things for which you make an extra charge.

You might have a third tier – the “first class” or “Rolls Royce” service – where you’ll deal with all and any issues that arise but for a fee that is appreciably more than the entry level fee.

Consider your options carefully

You need to think carefully about this and it’s likely to involve a change of culture in your firm. Far too may solicitors think it’s a hassle to advise the client that they’ll be charging more when they encounter a problem. Worse, still, some solicitors, make the problem their own so to speak, and that’s never a good thing. With each additional problem you take on during a transaction you dilute the profitability of the fee because the fee you’re charging was calculated based on doing certain things – it was, wasn’t it?

And here lies the problem. Most law firms charge a fee based on the “going rate” in the town or city where they’re based. Not an awful lot of thought goes into setting fees and that’s probably why solicitors end up doing enormous amounts of unpaid work – or at least diminish the profitability of the original fee.

Where do I start?

So, do yourself a favour, whether you’re in England where fee transparency is already “live”, or in Scotland, where this seems to be on the way. Take a step back. Look carefully at everything you do in a transaction or a case. Strip it back to the bare bones and work out who does what and how much that costs. Then decide what profit margin you want to add. This will give you your base fee. You can then decide whether that’s the charge for the core work involved with a list of extras and their corresponding charges. Alternatively adopt the British Airways position and have levels of charges depending on the level of “comfort” you’re providing to the client.

Fee transparency doesn’t have to be a threat to your business. It can be an opportunity law firms should grasp with both hands and run with. It doesn’t just apply to residential conveyancing – it applies to all the types of work you do. This is an an opportunity to review what you charge but also how you charge. It’s most likely to lead you to a fee charging basis you can justify. At the same time it’ll allow you to increase the profitability of each case. I know many of you would like to be properly paid for the work you do – this is your chance!

Author: Brian O’Neill

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