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This Ethics Opinion Should Make You Think Twice About Fixed-Fee Referral Services

By Casey C. Sullivan, Esq. on August 12, 2016 1:56 PM

A South Carolina ethics opinion on attorney fee-sharing should give lawyers considering fixed-fee legal referral programs like Avvo's Legal Services pause. Avvo launched ALS this January, as a sort of Uber for legal services. The service allows customers to pay for legal work by task, rather than by billable hour, with Avvo setting the prices. Reviewing a prenup costs $150, for example, incorporating an LLC costs $595. Customers purchase the service through ALS, who then pays the attorneys that actually do the work.

Avvo, of course, takes its own cut, as a marketing fee. And those fees, along with the pay-for-referral nature of the service, have just been called unethical by the South Carolina Bar's Ethics Advisory Committee.

Marketing Fee or Forbidden Fee Splitting?

The ethics opinion could be a major roadblock for Avvo, as Robert Ambrogi notes on his Law Sites blog. When ALS was first announced, he writes, "some commentators and readers expressed concern that this arrangement could constitute inappropriate fee sharing." Avvo dismissed those concerns, since its marketing fees were taken as separate transactions.

But the South Carolina Bar seems to have come to agree with the ALS naysayers. In the advisory opinion, the ethics committee writes, "The fact that there is a separate transaction [for marketing fees] in which the service is paid does not mean that the arrangement is not fee splitting as described in the Rules of Professional Conduct." The opinion continues:

A lawyer cannot do indirectly what would be prohibited if done directly. Allowing the service to indirectly take a portion of the attorney's fee by disguising it in two separate transactions does not negate the fact that the service is claiming a certain portion of the fee earned by the lawyer as its "per service marketing fee."

The Referral Fees Are No Good, Too

And it's not just fee splitting that draws the bar's ire. Because ALS's fees are based on the type of work the lawyer does, instead of on a per advertisement or per click basis, they are, "in essence," "a contingency advertising fee arrangement rather than a cost that can be assessed for reasonableness ... There does not seem to be any rational basis for charging the attorney more for the advertised services of one type of case versus another."

If you've worked with ALS or a similar service before, though, you don't necessarily have to worry about bar ethics police kicking down your door just yet. As the opinion itself notes, it is only advisory. South Carolina's Ethics Advisory Committee has no disciplinary authority.

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