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Are You Paying for Your Lawyer's Incompetence?

From Inside Personal Finance

Traditionally, attorneys -- like many professionals -- charge by the hour. That way, theoretically, you pay for the service you get. Right?

Maybe not. If you consider the situation from another perspective, you could reasonably conclude that, rather than paying for your attorney’s aid, you’re actually paying for his incompetence.

For example, when you call an attorney to ask a question, one of two things will occur. Either he’ll answer your question immediately (which he’s able to do based on his knowledge and experience), or he’ll say that your question will require some research and analysis (meaning he does not know the answer, but knows where to get it).

In the first case, he might send you a bill for 15 minutes of his time, based on his hourly rate, or depending on your relationship, he might waive this fee. But if he doesn’t know the answer, as in our second scenario, he’ll grab his paralegal, a couple of associates, and -- 17 billable hours later -- he’ll call you with the answer you need. In other words, the fee goes up the less he knows, and you end up paying for what he didn’t know (for had he known the answer, he would have told you in that 15-minute call). Although it sounds bizarre, this is how the legal game works: You pay for incompetence.

Of course, many (if not most) questions you might think to ask an attorney (or accountant, too, since they also tend to charge for their time) require complex answers, and few attorneys (or accountants) could be expected to give you immediate answers. In fact, one architect I know has a snappy answer to clients who ask him the #1 question asked of all architects: How much will this building cost? His reply: “Well, I could give you an answer in thirty seconds, but my three-day answer will be a lot more accurate. And I’d be willing to give you my three-week answer in writing.” It’s a clever way of saying that you shouldn’t ask for -- or expect -- immediate responses to seemingly simple questions.

So if few attorneys are going to be able to give you immediate answers, why do experienced attorneys charge more per hour than novice attorneys? The answer: It takes them fewer hours to do the work.

First of all, experienced attorneys know the questions to ask (if they don’t already know the answers), and this is very important. Novice attorneys often spend a lot of time trying to figure out what the questions are, while experienced attorneys quickly understand the issues and begin focusing on the answers. They also tend to know where to look for the answers. If you think that’s not important, imagine yourself in a race to find information in a library -- a race between you and the librarian. Guess who’s going to find the information first? When time is money, speed counts.

And when the attorney is truly experienced -- meaning he’s “seen it all” and nothing you present will be new to him, he can forego his hourly rate and offer you a flat fee. Clients love this fee structure, because it eliminates the uncertainty that surrounds ticking clocks.

Will your attorney be willing to work for a flat fee? If you’re engaged in a lawsuit, it’s highly unlikely -- because the attorney has no way of knowing how much time will be involved. But in more routine matters -- such as estate planning, patent applications, trademark filings, bankruptcies and sometimes even divorces -- flat fees are common. But the only attorneys willing to offer flat fees are those with enough experience to know how to do the job quickly and completely.

So, when you seek an estate attorney, ask about their fees. If the attorney charges by the hour, it could be a sign that he’s inexperienced in estate matters (and therefore unwilling to commit himself to a flat fee in the face of uncertain work). You’d probably do better to find an attorney willing to work for a flat fee, for that suggests that, for the attorney, your requests are nothing unusual -- and while all this is new to you, you certainly don’t want this to be new to the attorney!

And one final comment: don’t select your attorney merely based on price. Inexperienced attorneys might charge less, but you also might get what you pay for.

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