Banking, retainers common mistakes by new firms

Mixing personal and professional expenses, getting the wrong kind of trust account from the bank and glossing over retainer letters are some of the biggest mistakes made by lawyers striking out on their own, said a panel at the Ontario Bar Association’s Institute on Feb. 6 in Toronto.

Banking, retainers common mistakes by new firms
Anne Kennedy says retainer agreements become important reference points as a lawyer’s practice grows.

Mixing personal and professional expenses, getting the wrong kind of trust account from the bank and glossing over retainer letters are some of the biggest mistakes made by lawyers striking out on their own, said a panel at the Ontario Bar Association’s Institute on Feb. 6 in Toronto.

The panel included: Phil Brown, counsel of professional development and competence at the Law Society of Ontario; Aaron Grinhaus, lawyer and law firm consultant at Grinhaus Law Firm;  Ian Hu of LawPro; Andrew Swales of Next Generation Legal Accounting; and Anne Kennedy of Pallett Valo LLP.

Swales told the audience that he meets most of his clients through the auditing process. In addition to separating personal and professional expenses, other challenges faced by new firms are in billings and collections and deposits. For example, moving money from a trust account to a general account needs to be authorized by a signature, and law firms need to build that into their process, he says.

“The best way to be prepared is start early. Choose an accounting software. There are a lot of options that are cost effective and efficient for different practice areas. So, there’s no excuse,” he says of the audit process.

Grinhaus noted that, unlike a regular corporate bank account, banks should not charge monthly fees to trust accounts because that money belongs to clients. However, the banks make that mistake so often that it’s become a “running joke,” said Brown, who encouraged lawyers to have good relationships with their local bank branch manager.

“You don’t have to have a trust account, but you will need it at some point, so just get it from the beginning,” says Brown. “And don’t give your trust account number to your clients.”

During a practice review, lawyers are expected to have a retainer letter in every file, which Brown says surprised him when he practised as a criminal lawyer.

But Hu and Kennedy both stressed the important aspects of retainers.

Hu noted that LawPRO’s online sample retainers all include language that emphasizes the professional nature of the client-solicitor relationship.

“If they start screaming at you or swearing at you, you can say, ‘This is a professional relationship. It’s in our retainer agreement.’ Stop them right away,” he says.

Kennedy noted that retainer agreements become important reference points as a lawyer’s practice grows and a lawyer needs to check whether they have any conflicts of interest with new clients. For example, she says, retainers can spell out which email addresses or phone lines are used for confidential conversations and who can access them.

Without retainer documents, it can become fuzzy determining “who was the client” when there are multiple family members or businesses involved in the case, she says.

“The longer you are in practice, the more you are going back to those retainers,” says Kennedy.

Brown noted that non engagement letters are also good to keep records of, so there is no question about a missed limitation period or a service they expected you to provide.

“[Non-engagement letters] should be going out the door with everyone who doesn’t engage you,” he says.

Technology can pose a challenge for record-keeping, especially as younger lawyers and clients move toward communicating by text message, says Brown.

“It makes sense in this world of fleeting communications; you want to memorialize them. You want to make sure you’ve somehow documented a conversation,” says Brown, who suggested screenshots as a possible solution.

New practices can also be especially vulnerable to fraud, says Hu, when fraudsters pose as new or existing clients and use email addresses to request trust money, dragging the lawyer into potential money-laundering operations.

He suggested using ID verification, talking to the client on the phone or in person and avoiding using contact information provided by email.

Grinhaus added that lawyers need to pay attention to building the right team and choosing the right structure for their firms.

“In addition to the budget, which I think is the most important part of the business plan, the structure is critical as well,” says Grinhaus, who noted that business structures such as LLPs are only really available to lawyers and accountants. “Build a firm foundation and then you can build this thing as high as you want.”

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