ELITE ADVISOR BEST PRACTICES
Big Law Firms Bailing on Trusts and Estates
Opportunities abound for boutique advisors to fill the void
By CEG Elite Advisor Report staff
- Over the next decade, more family wealth will be transferred between generations than at any previous time in history.
- Large law firms are finding it increasingly difficult to make trusts and estates work fit into their current business model.
- Agile, smaller firms with specialized skills and personalized service are stepping in to fill the void.
- Savvy advisors have learned to overcome the internal breakdowns of trust and communication within the family.
Last month, New York-based Debevoise & Plimpton became the latest big corporate law firm to discontinue its trusts and estates practice. In 2011, Weil, Gotshal & Manges, a 1,200-lawyer firm, got out of trusts and estates, concluding that T&E did not fit the firm’s business model. Another firm, Gibson Dunn & Crutcher, with 1,100 lawyers, ended its T&E practice about a decade ago.
Even though families are expected to transfer more wealth in the next ten years than at any previous time in history, big law firms increasingly are turning away from the opportunity to shepherd that record asset flow.
“It’s clearly an opportunity for smaller firms to jump into the market,” said tax expert Sidney Kess, an accountant and lawyer, who is of counsel to Kostelanetz & Fink in New York.
Experts say corporate law firms used to look at trusts and estates as a small but important practice that discreetly advised wealthy families. Skeptics say that drafting wills and trusts is less lucrative than multibillion-dollar corporate transactions and high-stakes litigation. Corporate and litigation partners generate big fees by assigning armies of junior lawyers to megamergers and complex lawsuits. By comparison, T&E work requires far less manpower, albeit specialized, which means far less profit.
As large firms de-emphasize their T&E practices, boutiques are sprouting up to fill the void.
“I’ve built my practice winning clients who want top-flight service and credentials but who are turned off by big-firm legal fees,” commented one local tax and estates planning attorney online in response to a recent New York Times story about this trend. “I enjoy making house calls, am committed to reasonable fees and am glad to answer to my clients and not a management committee. It seems the profession needs to take a good hard look at the economics of lawyering and get in touch with the reality outside big business and big bucks.”
New skills are required to help transitioning families, and those skill sets may not comfortably fit in conventional law firms, according to Vic Preisser, a founding director of the Institute for Preparing Heirs in Pasadena, California. “While firms are doing a great job on the legal and tax aspects of preparing assets for heirs, it is becoming increasingly clear that unprepared heirs are the problem.”
Large firms’ eye-popping bill rates have also come into play. While big corporations grudgingly pay those rates, which can approach $1,000 per hour, wealthy families often resist them as they’re more likely to demand specialized skills and service.
According to Preisser, the notion of preparing heirs is a specialty field treating the entire family as the client. You have to learn how to overcome the internal breakdowns of trust and communication within the family. How does a firm incorporate those newly required skills into its practice?
Instead of incorporating new skill sets, law firms are “stepping away from low-paying estate planning services,” said Preisser, and allowing the services to be concentrated in a few competing law firms; and they are using outside “specialty coaching firms” to meet the needs of their clients.
With record amounts of family wealth in motion, affluent families are increasingly turning to niche firms that can provide family coaching and specialized expertise—not just a “white shoe” reputation—to help them with complex wealth transfer needs.