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By Murray Gottheil | April 11, 2024
Hey law firms! Have you given much thought to partners approaching retirement, and calculated what their retirement may cost you?
I reckon that there are at least five different attitudes that a retiring partner (“RP”) may have. Here they are:
- Strategic Break: The RP wants to leave the firm and recoup the greatest reward possible, so they leave a few years before they really want to retire and transition as many clients as possible to a new firm which is willing to pay them for the clients whom they bring over;
- Mad as Hell Break: The RP encourages clients and referral sources to leave and would never refer anyone in a million years:
- Complete Break: The RP leaves the practice and has no interest in helping their former partners but does nothing to influence clients and referral sources to stay or leave;
- Luke-Warm Break: The RP leaves and takes steps to introduce the key clients to other lawyers at the firm but does not make special efforts beyond that;
- Sizzling Hot Break: The RP introduces clients and referral sources to successors, including personal meetings; coaches and trains successors on how to handle the clients and referral sources; vouches for their successors to the clients and referral sources; refers clients following departure; talks up the firm to everyone; follows up with clients and referral sources post-departure to find out if they are happy with the succession and intervenes to address issues.
Each of these types of breaks will have a different cost to the firm. Although the financial impact will be different in every firm, and for every partner within a firm, each firm should be able to come up with a methodology for measuring the impact. Here would be my stab at something that might work for a partner with a substantial client base retiring from a medium-sized firm, comparing a Mad as Hell Break to a Sizzling Hot Break:
Assume:
- RP client origination credits = $2,000,000 annually.
- The firm earns 40% of its gross fees after paying the lawyers who do the work and the lawyers who bring in the work.
On a Mad as Hell Break:
- Client retention = $300,000.
- Value of clients retained for one year = $300,000 x 40% = $120,000.
- New clients referred = zero.
- Other value provided by RP = zero.
- Net Value to firm = $120,000 annually.
On a Sizzling Hot Break:
- Client Retention = $1,500,000.
- Value of clients retained for one year = $1,500,000 x 40% = $600,000.
- New clients referred = $100,000 annually.
- Payment to RP for new referrals = 15%.
- Firm earnings on new referrals = $100,000 x 40% – 15% of fees billed = $25,000.
- Other value provided by RP Break (ongoing contributions to firm morale, consulting, mentoring, etc.) = $20,000.
- Net value to firm = $600,000 +25,000 + 20,000 = $645,000.
Maybe you should think about how you treat your partners on the way out, and what their attitude is likely to be.
Murray is a happily retired lawyer who lives in the country, drives a pick-up truck, writes, teaches and mentors. You can reach him at [email protected] or see what he is up to at lawanddisorderinc.com.
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