James Robert Underwood, Esq. and William Michael Lowenstein, Esq. gathered at 6:00 p.m., for their weekly cocktails at the University Club, perched high atop the law firm's building just north of the financial district.
After ordering, James leaned over to his colleague, stating: "William, we need to change the way we get paid. Here we are, practicing law, and helping our clients buy and sell small, closely-held businesses as their outside corporate legal counsel. But we just get paid our hourly fees."
William replied: "Our hourly rates are $750 an hour. Do you want to increase our rates?"
James answered: "No, our hourly rates are in line with the market. But, it's just not fair. I have friends who are stockbrokers, who barely work three days a week, and they make far more than I do."
William concurred: "Yes, that's true. We went to college, then three years of law school, and then we worked 70-hour weeks as associates. Here we are, about to become junior partners, and yet we still put in the long hours. And the senior partners do, as well. Yet there are brokers who never even finished college who make far more than I do, live in more expensive neighborhoods, take many more vacations, and don't seem to work very hard at all."
James responded: "Like I said, we need to change how we get paid."
William: "What do you have in mind?
James: "Well, here is what I was thinking. Every time we help a client buy or sell a small business, let's take 5.75% of the purchase price as our fee."
William: "That could be a lot of money, if we start charging commissions. But I don't like the fact that we would not be receiving ongoing compensation."
James: "Not a problem. We'll also charge 0.25% a year, each year, of the value of the corporation, for as long as our clients hold the stock."
William: "That sounds better. But what if the clients don't like the up-front commission?"
James: "Then we'll just charge 1% a year of the value of the corporation, for as long as the clients own the corporation."
William: "Do we need to provide ongoing legal services for this fee?"
James: "Not really. We'll just act as custodian of the stock certificates, and each quarter send out an invoice for these custodial services."
William: "Sounds pretty favorable. I could go for that."
James: "But it gets better. Suppose we are representing the purchaser of a business. We can ask the sellers of businesses to pay us annual fees, to help them promote the sale of their business. We'll call them 'shelf space' fees. And, on each transaction, we can get kickbacks from the transfer agent of the stock - we'll call it 'payment for order flow.'"
William: "Now that's really challenging the ethics rules that govern attorneys. How will we get around them?"
James: "We don't. Given the huge sums of money we'll be making, we will use part of our profits to lobby the Bar Associations to change the ethics rules. We don't want to be constrained in our business practices, after all. Government should not be interfering with how we make a living, anyway."
William: "That's a great idea. What ethics rules will we have to change."
James: "Well, first there is that pesky rule that attorneys can't enter into transactions with their clients, as it would create a conflict of interest, unless separate legal advice is obtained by the client. That rule has to go."
William: "I agree. I think it should be fine to be paid fees from the seller, or the transfer agent, even if we also are paid by, and pretend to represent, the buyer."
James: "And then we'll have to eliminate the restriction that attorneys' fees be reasonable. We should be able to extract whatever rents we want to, from each transaction."
William: "Yes, if we do that, then on larger transactions where we do charge a 5.75% commission, and get paid tens of thousands if not hundreds of thousands of dollars, no one can claim our fee is unreasonable then. But don't we still have a duty of care?"
James: "We'll have to change the standards of professional conduct there, as well. We'll just state that we can't be sued as long as the transaction is 'suitable.'"
William: "Suitable? What does that mean?"
James: "Well, it's a pretty nefarious concept. We'll just let the arbitrators decide. And, oh, by the way, all of the arbitrators will need to be approved by our Bar Association, as well. And arbitration will be mandatory."
William: "But don't we also possess a fiduciary duty of loyalty to our clients, as well? And if we try to get rid of the duty of loyalty, won't consumers object."
James: "Oh, we'll just say we're acting in our clients' 'best interests.' But we will re-define the term 'best interests' - through our new ethics rules - to mean 'suitability' - nothing more.
William: "How will we call ourselves then? Legal counsel? Legal advisors? Don't those terms imply a relationship of trust and confidence."
James: "Not a problem. We'll just have our regulatory body opine that lawyers can call themselves anything they want, even 'advisors' and 'counsel' and 'consultants' and 'managers' - even if the lawyers actually represent the other party, not the client."
William: "Just one more thing. Attorneys are fiduciaries to their clients. They owe clients strict duties in transactions they provide advice upon, including due diligence, the duty to avoid conflicts of interest wherever possible, and the duty to be completely honest and candid with their clients."
James: "We'll have the rules of conduct changed. Lawyers won't be fiduciaries to their clients anymore. Of course, clients won't be aware of the change, as we will still call ourselves 'legal counsel' and 'legal consultants' and 'legal counsel.'" But, let's not be concerned with clients. After all, we don't want to restrict our new business models.
William: "I love it. I can see myself relaxing on the beach in the Caribbean now, at that conference for transnational attorneys, with all of the costs of attending paid by third parties who want us to direct our clients their way."
James: "Therein lies the beauty of it all. Multiple streams of income, paid in ways the client never realizes. We hold out as trusted advisors. But we don't have any real duties to the client anymore. And we make a ton more money. We'll be able to work far less, and receive huge commissions and fees similar to 12b-1 fees. It will be glorious."
William: "Let's call our friends at the Bar Association, right away. And let's make certain you and I get on the Board of the Bar Association, next year, or get hired as staff members, so we can ensure the rules get changed as fast as possible. I'm certain our firms will give us large bonuses if we devote ourselves to keeping the standards of professional conduct low."
James: "It's a deal! No more fiduciary duties. We attorneys will no longer be constrained by those burdensome principles-based fiduciary duties. We'll make millions!"