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Off-the-peg divorces: firms adjust to commercial reality

Winning work via loss leaders may be the way forward for large companies now clients are more discerning

25 February 2014

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Winning work via loss leaders may be the way forward for large companies now clients are more discerning

Pricing strategy is a priority for law firms. How do they market their quality of service while ensuring value for money and appeal to a wider client base? The new barriers to securing legal aid and high court fees means the cost of divorce is more important than ever to couples.

While the Co-op dresses its 'shop window' with a "you only pay for the help you need" message, LawVest's Riverview Law has offered flat rates since 2012 and traditional law firms are jumping on the fixed-fee bandwagon, even the large and commercial ones.

West End firm Seddons recently unveiled its new time-limited, fixed-fee package. The arrangement covers up to four hours' work for £1,700 including VAT and court fees comprising an initial phone call, consultation, guidance and pragmatic advice through the process and completing all necessary forms. How will the firm benefit?

"It certainly doesn't make us much money," says Deborah Jeff, head of the firm's family team. "It's really for a straightforward divorce where clients want to instruct us as London lawyers and have the benefit of doing so but they want to keep an eye on how much they're spending.

"It's also when clients have perhaps difficult financial issues to resolve but they want to save the money for dealing with that rather than spending it on a partner-run divorce."

For example, Jeff is running the financial settlement of a case while her seven-year qualified is dealing with the fixed-fee element. "So we're capping as much as the client is spending on the divorce process itself," she says.

The firm will monitor progress with view to rolling it out for financial settlements as well and may need to tailor the offering.

Top-50 firm Mills & Reeve launched a fixed-fee service in 2012 preferring a case-specific price, opposed to the flat rate, and like it.

"We've put a lot of work into how to give our clients greater certainty on costs in family cases without compromising our high standards of advice and service," says Nigel Shepherd, partner in the family department at Mills & Reeve.

"Fixed fees for specific pieces of work such as first meeting, uncontested divorce, marital agreements and support for mediation are an important part of this. We've found that our clients have welcomed the ability to get the advice from a leading firm at a price they know in advance."

Jeff says Seddons' launched its service because clients know what's out there and made enquiries. "Clients are much more consumer-aware now as to the various options available to them - and too right," she says.

"To make sure it does work for us, we need to make sure that the time we're spending on behalf of the client's work is reasonable. Provided we're transparent, that's the point clients appreciate. They understand if there's a reason for change and we explain that to them.

"We wouldn't offer a fixed-fee structure if it didn't protect their best interests. We are running exactly the same divorce process and amount of advice and quality of advice in that fixed-fee package, it's just that it's run by a seven-year qualified associate rather than a partner."

However, it is challenging ground to plough. Fixed pricing on conveyancing or transactional work makes sense but litigation is complex and the danger is you're always going to do more work than anticipated, says Julia Thackray, former head of family at Penningtons and family law course leader at Central Law Training. "Even quite simple cases can become very entrenched."

A divorce may be the obvious place to start with fixed fees because the process is reasonably predictable. "But people think of divorce and everything that goes with it; what lawyers mean is actually the divorce process."

Fixed fees for uncomplicated divorces seems to be the way forward, but how much of a loss leader is it? Shepherd says: "What we are offering is quality with certainty not a cut-price service. The key for the client and the firm is to scope the work effectively, gather the basic factual information we need online and be clear on what the client is getting for the agreed fee."

Thackray adds: "You don't want too many cases which are not going to earn you any money. But if you can do them relatively cheaply and the divorce itself is something fairly simple that junior staff can do then you can still make that work because you're pushing simpler work down the pyramid."

The pool of big money dispute cases is relatively small and everyone wants a piece of the action, so large firms could be losing out to their smaller counterparts or alternative business structures, who offer mass market appeal. Of course, even high net worths don't want to splash their cash on fees.

People may go elsewhere if firms don't at least offer fixed fees, so it is a way of winning clients. Once they're through the door, there is the opportunity to cross-sell. And while a cheap divorce is not a massive fee-earner initially, if it turns into a bigger case, there's still the option to charge an hourly rate.

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Legal services Family