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Partner retirement: how to keep the clients and assign the business

When a partner retires, the top business concern is if and how the firm can keep the clients.

And there’s more than one reason to be concerned, says August J. Aquila, of Aquila Global Advisors, a Minnetonka, MN, consulting firm specializing in succession planning, mergers, acquisitions, and strategic planning for professional firms.

Obviously, the firm wants to keep the revenues. But along with that, a transition gives the younger attorneys an opportunity to build their client bases “and that in turn keeps the livelihood of the firm stronger.”

Moreover, if there’s a deferred compensation arrangement with the retiring partner, paying that out “without the benefit of having those clients” means the firm loses money.

To keep the business going, the firm needs to have a client transition plan in place several years before the partner retires.

A sticky, three-year process

The transition needs to begin at least three years before the retirement, Aquila says. The firm will need that much time to ease the clients into a relationship with a new attorney and make sure the chemistry between the client and the new attorney is right, and if it isn’t, to bring in somebody else.

The time is also necessary for the retiring partner to ease out of what in most cases is a long-time career, and to make that work, the firm “has to have some empathy for the individual.”

It’s difficult to phase out of law practice, particularly if the partner has been the king pin of the firm. It’s difficult to change the role with clients. And it’s difficult to face the question of “what am I going to do with the rest of my life?”

Sorting the A, B, and C clients

The way to begin the transition is to identify which of the partner’s clients “the firm really wants to keep.”

Put them into the categories of A, B, and C according to how much the firm wants to keep them.

The A Clients are the ones who bring in 80% of the revenue. In general, the 80/20 rule applies, and the A Clients will account for 20% of the partner’s book of business, Aquila says. “That holds true no matter what the industry.”

The A Clients are also the ones who are good referral sources as well as those who names are recognized and can enhance the firm’s reputation.

The B Clients are the ones the firm would like to keep but who aren’t essential.

And the C Clients are those who do not consistently bring in business.

Who’s going to match up here

With the clients sorted, do some background work and look for the right attorney to match up with each one.

The best match is usually with a junior partner or senior associate who already has experience working with the client and therefore has familiarity with both the individual and the business and possibly a good personal relationship with the client as well.

However, the new attorney has to be in a position to take on the amount of business that client brings in without getting bogged down in it. Otherwise, the attorney is overworked and the client gets less-than-optimal service.

And just as important is that the new attorney actually wants the business. If there’s no enthusiasm, the client will see that and go elsewhere.

Breaking the news to the client

Only after the matching is decided on should the firm tell the clients about the partner’s decision to retire. And they need to hear about it from the partner directly and in a face-to-face meeting, Aquila says. Don’t let them read about it in the newspaper.”

A good script:

I’m reaching my retirement age, and I want to make sure you receive the same level of service that you’ve been receiving in the past. I want to talk to you about the individual who would take over your account and introduce you to that attorney while I’m still at the firm. You’re important to us, and we want to make sure you are served well.

You’ve been working with Attorney New and me for several years, and we’d like to transition more of the work from me to that attorney.

It’s also important that the client realize the partner isn’t leaving immediately but will be around for the next few years and will oversee the transfer of business.

How a client responds to the news, however, is anybody’s guess. Anything can happen.

It may be the client is the owner of a small business and has been with the partner for the past 40 years and has stayed with the firm solely because of the personal relationship. That client could well opt to find another firm.

Or the response might be that “we like Attorney New, but we just don’t mix.” In which case, the firm has time to get another attorney into the picture.

But whatever happens, the conversation is essential, because it tells the firm how to react. Without it, “you’re going to be that ostrich with the head in the sand and someone is going to come kick you in the rear because you don’t see it coming.”

Following up on the pairing

The partner also needs to maintain contact with the client throughout the transition to identify any issues that may comes up, Aquila says.

A few months into it and off and on thereafter, call and ask all is well with the relationship and if the new attorney is meeting expectations.

What really roils this client?

During the transition, the new attorney needs to set up a client-preferences guide covering all the unique requirements for the client.

Those are minor elements such as how often the client wants to be contacted and whether contact should be made by phone or e-mail and how the client wants to be billed.

To they are major elements as well – client peculiarities – and to find out what the are, the new attorney needs to spend time with the partner and discuss things such as “Talk to me about Client Smith. What are the really weird things I should be aware of with this client?”

Ask too “What are the things that really get this client mad?” Most of the time, it’s not the work itself that’s ever at issue but whether the firm meets the deadline or goes over budget. “It could be that a $100 difference makes a client mad” and the new attorney would never have thought about that.

The more the firm can capture the client’s preferences and idiosyncrasies, the better the chance of a smooth transition.

And now for the money

The one most important factor the firm has to address, however, is the financial impact the retirement preparation will have on the retiring partner. The transition has to be designed “so the partner isn’t financially hurt” while the business moves to other attorneys.

If partner compensation rests solely on what the partner bills, there no incentive at all to transfer any business. It just means the partner gets paid less and whoever takes up the work gets paid more.

The surest way to get transition to work is to lock in the partner’s compensation so there’s no money lost for lack of work.

Suppose the partner plans to retire in three years. The partner is bringing is $300,000 a year, and the firm wants move those billings gradually to other attorneys so the partner bills only $200,00 after one year, $100,000 after two years, and zero at retirement.

There doesn’t need to be an incentive, he says, but there definitely has to an assurance the compensation won’t go down as the billings decrease.

There also needs to be a stick with the carrot to ensure the partner actually does transfer the business. In that regard, the firm might say “We want to you transition $100,000 of your billings each year. We will maintain your salary at $300,000 a year – as long as you reduce your billing accordingly. However, if you only transition $50,000 a year, your compensation for that year will be reduced to $250,000.”

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