ALPS InBrief - Episode 72: Do Legal Subscription Services Really Work?

Transcript:

Mark Bassingthwaighte:

I'm Mark Bassingthwaighte, the risk manager here at ALPS, and welcome to the latest episode of ALPS In Brief, the podcast that comes to you from the historic Florence building in beautiful downtown Missoula, Montana. Today, I thought I'd talk about subscription and legal practices. They've been around for a number of years. I would not describe them as just this massive rush of lawyers moving into this subscription practice space, but in my experience in recent years, there's been a lot more interest in it, and it seems to me there's a movement, a growing movement toward this for a variety of reasons, not the least of which is the fallout and all the experiences in terms of hybrid work and working from home and things that happened as a result of the pandemic. We're more and more open to, as lawyers, more and more open to really saying, "Can we do something different here?," because different has worked in other spaces, again, going home, and doing virtual practices for a while, and all these changes that occurred.

I also think there's a recognition that a move toward more client-centric practices is beneficial financially, and I think a good thing, and this, in terms of the subscription legal practice model, is one way that I think you can create a client-centric practice. It's certainly not the only way. I mean, even traditional practices can be far more client-centric, but I like this model surprisingly, I think some folks, I think a risk guy, or a malpractice insurer speaking to a representative, a malpractice insurer. Malpractice insurers may not like these kinds of things for a variety of reasons, and no, I've got to say, I do. I really do.

We need to understand, however, some of the risks and some of the ethical issues, which is really driving my interest in talking about this today, but let's start off by really just sort of defining what a subscription practice is, for those of you that really haven't dug into this or looked at it a whole lot. It really is what it sounds like, and so many of us in today's world are users or consumers of subscription services of a variety of types. Netflix, as an example, would be a great one. Some of these food companies, they send you all the ingredients to make your meals once a week or once a month, these subscription services. There's lots of things.

So the market's very used to this, and as it relates to law, we're really just talking about a lawyer or a firm, offering clients certain legal services on a recurring monthly fee. It's a subscription. Now, what would be included in this subscription? Well, all kinds of things. I think it's, lawyers, we can be a creative bunch, and so I can't limit it to this, but generally, you're going to see some things. There may be availability, so for whatever the subscription fee is each month.

If I'm a prospective subscriber here, I might be thinking, "Okay, you're describing I'm going to get two hours of consultation with you a month. I might get two additional hours of a document review of some sort. I might get access to online forms, access to you for some drafting.' Again, we can say a document or two and describe what that is, or a certain number of hours toward drafting." Again, we can say a document or two and describe what that is, or a certain number of hours toward drafting. You could offer, I'm sorry, prerecorded videos on relevant topics, in other words, some type of library of educational resources.

It could be articles, and just the list just goes on and on. The point is you're trying to create some type of value for the subscriber, and in terms of what it does to you, I mean, think about it. You start to have a little bit more reliability in terms of a steady income stream. I think the model is an excellent model. I also think it can work particularly well in something like the nonprofit space.

I mean, a lot of nonprofits out there that really can't afford to hire full-time, in-house council or even full-time outside counsel, and then honestly, they may not need somebody full-time, but the legal services they need can be expensive. Well, hey, if you have six, eight, 10 nonprofits all subscribing to your services, and you're creating a model to meet the needs of small nonprofits, now, here's something I think can work. So that gives you sort of a quick overview to get a sense of what subscription practices are all about. The first thing we need to kind of look at, though, or think through is just identifying, "Are there ethical issues here, particularly issues that would get in the way that would make this problematic to say the least?" Now, there certainly are some ethical issues, and we're going to discuss them here, but I don't see them as problematic in the sense of preventing anyone from moving in this direction, but what do we really need to think about?

Well, I think at the outset, if you have multiple clients, and that's the whole purpose here of subscription services, we have a potential for conflicts, and we can talk about how to deal with that, so with the conflict rules are going to be in play. We also have the fee issue. Is it going to be reasonable, and how do we determine what's reasonable? What about advanced payments? Rule 1.15 is going to be in play.

So what do we do with these funds when they come in, and how about if... How do we end this? I could, as a subscriber say... After a while, I'm kind of done. I'm just not interested anymore, and you could say, "Boy, Bassingthwaighte has been a subscriber that has just tried to take all kinds of advantage of me and is just so high-maintenance, and I'm not getting anything out of this."

You're just, "I'm costing your money than it's worth." So there may be reasons and times where you want to end a subscription. You might find that the whole model has been mispriced and you need to kind of shut this down, and rethink, and relaunch in a different type of model. So how do we conclude all of this stuff? So those are some of the ethical issues. 1.16, declining or terminating representation, 1.15, safekeeping funds, 1.5, setting fees, reasonable fees, and the conflict rules.

I think those are the biggest ones that we need to deal with, but, okay, so let's start to kind of get into this a little bit and figure out. I think it's worth starting with 1.5, and that's talk about, "How do we price?" There's not a standard formula here. I think you're going to need to look at the specific language of the rules in the jurisdiction where you are going to offer these services and are licensed to practice, and figure out what is reasonable, but I think it's very doable. You need to... I don't want to say, there's going to be a difference between, "Okay, if I am on the standard hourly billing model, I don't think pricing and thinking through is going to work in the subscription model, because why offer the subscription if your billing is going to be the same as the hourly kind of analysis?"

What you sort of have to do is sit down and figure out, "Okay, how much of my time is available?," so if I'm going to offer two hours of consultation, a couple hours of contract review, and my availability. So in other words, I may, as the subscriber, may use or not use these services that you're going to offer, but in terms of the two hours every month, I may just not need that, but I'm also, I have availability to you if I do. So you start to factor in, okay, so the value that you're offering is access to you, some limited services, and perhaps these educational things, whether it's the forms, the access to some type of documents, or some DIY kinds of things, whatever it might be, and you kind of have to look at all that and try to hit a number that works, so you're going to have work through that. Again, I can't give you a standard formula, but I think it's worth making, valuing yourself or valuing your subscription based upon access, and I would try, I think honestly, to do a little discount here. You're exchanging, if you will, the full service hourly billing kind of cost model to ongoing, consistent, regular monthly income, so it has to make financial sense to me as a subscriber. So there's just some things to think about.

I can't give you the magic number here, again, a magic formula. I've seen some situations where it might be 100, $200 a month, and in other situations I've seen lawyers charging several thousand, five, 8,000 a month for services, but what the subscribers are getting for that five to 8,000 is, really, some pretty significant work, but it's still going to be less expensive to the subscriber then, and typically, these are going to be businesses at this tier, I think in most situations, but the business is still saving money by going on this subscription practice. So you need to find that magic number that's sort of a win-win for both of you. The more interesting question is ethically the safekeeping of funds, when, in other words, if you start to get a subscriber and these monthly fees are coming in, what do you do with them? Do they need to be put in a trust account?

Can they be earned upon receipt? Can you make them non-refundable? There are a lot of ideas out there, and you certainly want to get the steady income and make it easy for you and easy for your subscribers. The problem here is the ethical rules really don't address specifically this model. The one thing, and again, you're always going to have to check your local jurisdiction in terms of the RPCs here, I would strongly advise never to use words like non-refundable in... I don't care what your model is.

To me, it's more of an issue, "Are we going to put it in trust or not?" I think I sort of like this hybrid approach. I would argue that the funds that you charge monthly are earned upon receipt because there's this retainer component to it. It's not a true retainer, because a true retainer is just a client paying you to be available, and then any work that they ask you to do, subsequent to putting you on retainer, you charge whatever your rates are, so a true retainer is solely for availability. That's kind of what we have here, but it's a hybrid thing, because in addition to getting access to you, whether I use it or not, in a lot of these situations, I'm going to have access to this library, to these other resources on day one, and so if you describe what I get as the subscriber for the subscription, in a way, clearly saying, "I get access to you, I get access to this library of resources," or whatever other perks are out there on the side, and you have access to me on day one, and you have access to library on day one, well, I would consider that earned upon receipt.

Now, there still could be some arguments that ... Ethically, some jurisdictions may not like that. Well, I see two workarounds with that. The first would be you can charge at the end of the month, so then, it's earned upon receipt because they got what they are paying for by the end of the month. They've had their month of access.

Some say, "Wow, I'm giving away a month for free." Well, yeah, I get that. You could take the payment upfront, put it in trust, and then take it out of trust at the end of each month. You might take the first payment only and keep it in trust, and then, so they pay at the start. On day one, they pay.

You just hold that in trust, and then at the end of each month, or at the first of every next month, that keeps moving into your account and you sort of just keep that first payment out there, I guess for a while, 'cause I don't want to keep the hassle of moving money twice every month, sort of maybe let something sit. Again, you'd have to check with your local ethics council in whatever jurisdiction to, again, talk through that, but I think there's a strong argument for having it earned upon receipt if it is described like this in terms of clearly identifying what you get. Okay, there are some other ethical issues that we can talk about, but before I sort of... Instead of hitting them directly, I first want to let you know that there's an interesting ethics opinion that came out of Maryland, and it happens, if you're interested in this opinion, it's docket number 2020-01, so issued in January of 2020. It's worth taking a look at, but it's the only opinion that I'm aware of that really sort of dug into subscription practices and try to address some of these issues, and I think the advice set forth in that opinion is well worth looking at.

So I'm going to share sort of the key things that clients must be made aware of, or potential subscribers must be made aware of before they sign on the dotted line, okay? I'm sharing this because I think this addresses reasonably well, the issues that arise ethically. So there are nine items that this opinion talks about. The first, the specific services to be provided in exchange for the subscription fee must be disclosed and any limitations on the client's use of these services within a particular service period, so we need to set forth that information in an agreement. The client, or potential subscriber here, I keep saying client, needs to understand the method by which a subscribing client may request such services and the timeframe within which such services are to be provided, "Is this monthly?," "Is this quarterly?," that kind of thing, okay?

The benefits of a subscription, which would reserve your availability for representation, but which would also compensate you for providing the specified services upon request and without additional charge. So really saying, "What do I get for my subscription fee?" You need to detail that. The risks associated with this form of representation. Now, and they go on and say, "It may be hard to predict all the risks associated," but you have to inform them of some minimum type of things, conflicts of interest as an example, and other legal issues may later arise, which could preclude you from rendering some or all of the services.

Conflicts, let's talk about that. You can't represent two clients that are directly adverse. An example might be you represent some corporations and you help register a trademark for one of the companies, and then later on, one of the other companies, it's a client. A subscriber asks you to register a competing mark. Well, you can't do that, okay?

So we can describe what happens here. If a conflict arises, perhaps you disclose it, you'll refer we're able, the client, the second client, to another attorney to handle certain specific matters. Depending what's going on, you may not be able to stay with the second client at all, and so you need to withdraw entirely and end that subscription. So the details, the specifics are going to matter here in terms of what's creating the conflict and how you can resolve it, but I think it is resolvable, and we can get around, if you will, the hot potato drop, where particularly, when you're having joint representation... That's where it comes up most in terms of the hot potato drop.

If you're out for one, you're out for all. Well, that doesn't necessarily have to be the case when we're talking about situations like this, because we're disclosing upfront. View it as informed consent. This is one of the ramifications. There may be situations that you can't control because clients self-subscribe, and if you identify down the road a conflict, they agree in advance that they understand you may refer or you may have to withdraw.

So I view this as informed consent, and so there are different approaches here in terms of how you describe this and what clients are going to be asked to waive, but again, practice areas, et cetera are going to dictate some of this, but I think it's doable. I really do. Some other things that the Maryland Opinion talked about, you need to describe situations in which additional charges would apply for any of the services listed and whether additional retainer agreements would be required for more extensive work. The way I see that is, and I see this as a beneficial thing to do upfront, so I'm a subscriber and I see that I get these two hours of consultations or last-minute touch base if needed, I get contract review, document review, whatever it might be, but I know that there are going to be times where I'm going to need more work, but that's not going to be enough, and so you should describe and detail, "These are the limitations. This is specifically what you get and what you don't get for the subscription price, the subscription fee."

"If you need additional services along these lines," and you're going to know what most clients are going to need, "Here is the list. If you need additional hours, if you need additional documents drafted, whatever it might be, here are the rates." I would suggest sort of offering and letting people know so they can see some of the benefits, in other words. "Here's the friend and family/subscriber discount. Our subscribers get that special price."

"If you weren't a subscriber, having this service provided by me would normally cost you this," and it's another way to demonstrate value add of the subscription. So I think there's real value in doing that to help both in the sales piece, but also in the risk management piece so that we don't get into these arguments about, "Well, I thought I'd get more ..." Let's just make it very clear so this subscriber can make an informed decision, about whether or not to even do this. Since these fees... So going back to what the Maryland bar is recommending, additional things, setting forth that since these fees will be earned, irrespective of whether the client actually requests such service, you want to advise subscribers that the plan may not work to their advantage if they do not use available services, at least on a somewhat regular basis.

Help them understand the risks, the benefits, the pros and cons, okay? Then, you should also describe the circumstances under which subscription fees will be refunded to the client, including a provision that fees would, at a minimum, be refunded if the attorney fails, if you fail to render some or all of the services requested, okay? I would couple that with notices of the clients, right to cancel the subscription at any time subject to the refund policy that you come up with, okay? So let's talk about that a little bit. You will see in some models, and I'm just making numbers up here obviously, but let's say the subscription is $100 a month.

If I sign up for a year, my subscription's going to be discounted even more and maybe it'll cost me $1,000 for the year, as opposed to $1,200, and I'm in for six months, and then I'm not using this in the way I thought, or you decide, "Bassingthwaighte's using it way, way too much," and this subscription is going to be terminated before the year's out. So you haven't earned the full year, right? I've only been in six months, so you would want to refund half because I didn't get the benefit of the full year subscription. So that's an example of why I don't like these non-refundable kinds of things because bars are very consistent on this one. If you haven't earned it, you can't keep it, and even calling it non-refundable doesn't change that.

It's just an example of just what we need to think through. Then, if you're going to deposit into your operating account, in other words, treating the subscription fee at the beginning of the month as fully earned upon payment, if that is permissible in your jurisdictions, some jurisdictions, it should be, and in others, it's not going to be because it's not going to be viewed as earned, they don't see things quite the way I and a few others do, but just disclose what's going to happen to the fund, that the fees will be deposited into your operating account upon receipt subject, of course, to a refund of the entire subscription fee if you're not available or unable to provide the specified services. I could see, "Well, what that..." Could be anything. You get infected with ransomware and you're out for a while, and you couldn't follow through on any of this stuff.

You have an unforeseen illness of some sort. I mean, life happens, in other words, and there can be times where you can't follow through, but again, you're just disclosing. You're being very direct and upfront, transparent, that's a word of the day, about the money situation here. I like that opinion because it really does give us a sense of how to navigate these waters. What it doesn't really get into a great deal, other than to say the client has a right to cancel the subscription, I think it's also worth setting forth that you can cancel the subscription.

You might talk about why, whether the difficulties with a particular client, you're changing the focus of your practice, you might even need to reevaluate the terms, but I think it's important to let people know that you also, like they, have a right to cancel. You have a right to cancel too, and let's talk about what happens there, and particularly again, with the money, and my suspicion is the same policy, refund policy, et cetera, is going to be in play regardless of who terminates, but I think it's worth addressing because it's too easy to focus on all the things that might happen with a client and taking care and making sure they're fully informed, but then not thinking about, "Well, wait. What happens if I don't like this either?," speaking on the lawyer side of this. So that's sort of the gist of subscription practices and some of the ethical concerns and how I might think through the ethical issues and resolve them. I really do find the Maryland Opinion helpful.

I just want to keep underscoring because I think it's a worthwhile process to go through in advance, to really sit down and think through these issues and write an agreement that really discloses all of these things. It helps us, as lawyers, get a handle on, really, "What are we doing? What are we offering?" I think it's also then, just going to prevent disagreements and misunderstandings, perhaps is a better word, from arising with subscribers down the road. The one other little thing we could talk about briefly, and my apologies here, I wish I could give you a black and white answer, a very clear answer, and I can't, but I can give you something to think about.

The interesting issue here is, "Is malpractice coverage going to be in play with a subscription practice?" The answer isn't as clear as I'd like it to be or I would hope it would be. I think in general, yes. When you are in an attorney-client relationship, which you would be, but let's make sure that your subscription model is structured that way, because they have time with you, availability and all that, you are going to be delivering professional services using the skillset that you have as a lawyer to these clients, and they are all clients of your practice, so the subscription practice has to be part of... Sometimes it's all, and that's okay, but more often, it tends to be part of a practice, but don't break this off into a separate company.

I mean, you can, and we could talk about that in a minute, but if you want your malpractice policy that you have with your firm, these subscribers need to be clients of the firm, and they can be subscription practice clients. So I think if we've got all that, I think we're pretty good. Here's the rub, you need to look at sort of the definition of professional services, and is offering, as an example, do-it-yourself forms, that any subscriber can just come in and pick and use on their own without any involvement, review, advice from you about, "Does this fit the need or not?," some are going to argue that's not the practice of law, that's not professional services, and policies aren't going to respond. That's more of exposure. You're sort of a publisher's exposure, something along those lines.

You're making written materials available, and that's using your own risk kind of stuff. So there's not going to be a bright line on that when, in my mind, there's a bit of a difference between offering some forms, but advising clients to meet with you for, even if it's just a 15-minute discussion, to make sure that this form accurately addresses the legal concern the client is hoping the form will resolve, take care of. So that, to me, is very much down the middle of the road of practicing law, and if it's just freestanding forms, and they may not even get access ... So I'm really trying to draw a line here that's a little clearer on explaining or demonstrating the risk, but if we have just this site, where solely forms are made available, and that's all they get for their subscription, and they can just get in and have access and you're never really involved, you could say, "Well, I could be involved, and here's the subscribers discount for legal services," but the subscription doesn't include that at all. And so as a subscriber, I start using these forms.

I never get involved with you, and I sue you, at some point, because I don't know what I'm doing with these forms and made all kinds of mistakes. That malpractice policy isn't going to come into play there. Now, you certainly can ensure for that type of risk, and it's probably easier, in a situation like this, to split things out and have sort of a separate company that is just doing this exclusive DIY model without any attorney involvement there. You can get insurance on both sides and I think be pretty good, or both pieces of that, but it's when we start to blend this in various ways, we can get a little muddy. The best I can do is to say, as you work through looking at the model, and should you want to go in this direction, reach out to your carrier and have some discussions, and look at policy language, and try to identify and work through any coverage issues that might come up.

I just hate to see you run with an assumption, that because this is done at the banner of a law firm, that coverage is automatically there. Lawyers are not insured for everything they do under the banner of a law firm. Look at exclusions and policies. Financial advice is an example, obligations that arise under contract. There's all kinds of things that can come up.

A wrongful disbursement of funds, that's a property loss, that's not a professional negligence problem. So there are all kinds of things, and this is just another example of something that isn't necessarily covered. I just don't want to see you run with an assumption. So we've been at it here far longer than I thought we would. I hope you found something of value with this podcast. As always, if you have questions, concerns on this, or any other topic, please do not hesitate to reach out.

My email address is mbass, B-A-S-S at alpsinsurance, one word,  dot com. mbass@alpsinsurance.com. Hey, folks, it's been a pleasure. Have a good one. Bye-bye.