Pricing problems across the professions

Posted on: October 20, 2008

Oh dear. In the same edition of a London newspaper today there were two stories highlighting the pricing problems in the professions.

In one article, a chain of estate agents had sent out a mailer to home owners in the wealthy areas of Central and Greater London to say that they would waive their fees on residential transactions completed before the end of the year. So, on a £500,000 property, that’s a saving to house sellers of £7,500 – £10,000 (1.5-2%). Meanwhile, the residential lawyers on the patch are struggling to justify their fees of anything between £500 to £900.

In another article it reported from the Legal Budgets in The Lawyer magazine that some partners at the five Magic Circle City law firms (i.e. Allen & Overy, Clifford Chance, Freshfields, Linklaters and Slaughter & May) have “jacked up their fees to £900 an hour”. Now we all know that they have great lawyers at those firms, but this must surely be evidence of a strong brand supporting an inflated/premium price as there are simply hundreds of equally good lawyers at any of the top 10 (or 20) law firms.

Yet surely both the percentage and hourly rate fees must have come to the end of their shelf life by now? What about taking into account the value to the client of those professional fees? Or even the relative strategic importance of the particular transaction or job? Aren’t senior inhouse counsel at the global institutions under pressure from their shareholders to reduce costs?

The accountants seem to have got it (mostly) sorted – with the canny financial professionals wrapping up audit, corporation tax and various other regular services (e.g. PAYE, VAT) into an annual fee which is paid in equal monthly instalments by direct debit. One negotiation for the firm to achieve cash flow heaven and the client gets certainty and cash flow comfort – with both parties happy that only “extra” transactions or consultancy jobs (which the accountants are ideally placed to identify and highlight) need further negotiations and budgeting. And then you get the really shrewd financial whiz-kids at the larger accountancy practices – like the treasury managers – who only charge a fraction of a percentage of the often huge amounts of money that they make for their clients with some clever overnight cash parking or foreign exchange dealing.

What will happen when the current economic climate really starts to bite and, like the last recession, we see the return of cut throat low balling to win loss leading work? Let’s hope that the risk management systems that are now receiving attention post “unanticipated financial meltdown” will be turned towards day-to-day pricing decisions so we get some more interesting pricing models into play.

Like they say, “interesting times”.

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