How to Build Attorney Referral Agreements

Building the right relationships with other lawyers can be a lucrative source for finding new clients, and generating more income for your firm. But, it’s often not enough to merely send clients back and forth.

Depending on your jurisdiction, there may be strict rules on how you can earn and refer business between law firms—and on how you compensate each other via substantiated referral fees.

Writing formal referral agreements will help clarify relationships and ensure transparency in the the event of a regulatory dispute. A formal agreement will also help you navigate the potentially strict rules on how you pay referral fee amounts with respect to your case earnings. Again, it’s not as simple as writing a check or paying out of pocket.

Here, we’ll look at what types of rules may apply to your referral agreements and what steps you should be taking before paying a referral fee to another lawyer.

Rules to consider in building an attorney referral agreement

When building referral agreements with other lawyers, know that rules may vary between jurisdictions.

Some areas may allow referrals only between lawyers, while some may limit non-lawyer referrals to approved sources. Some jurisdictions may allow non-lawyer referrals, but may place heavy restrictions on their setup. Be sure to check with your local regulators for specific rules in your jurisdiction.

Interested in learning more about how to earn more client referrals? Read “Unleashing the Power of Referrals,” authored by Jared Correia, Esq, CEO of Red Cave Law Firm Consulting.

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The ABA Model Rules of Professional Conduct generally prohibit lawyers from paying others for recommendations—unless these payments align with exceptions under Rule 7.2(b). The rule includes allowances for referral services formally approved by regulators, and, among other considerations, the rule also requires that referral arrangements not conflict with any other Model Rules.

When structuring referral agreements in accordance with Model Rules, lawyers should look to Rule 1.5(e). As per this rule, referral agreements are typically built on the sharing or splitting of earnings based on work contributed to a case.

When building a referral agreement in accordance with Rule 1.5(e), be sure to account for these essential components:

  • A shared fee must be proportional to the work performed (otherwise, both lawyers assume joint responsibility)
  • The client must provide written consent to the sharing of fees, including the proportion of disbursement that the referring attorney receives
  • The fee shared must be reasonable

Rules for non-lawyer referral agreements

Non-lawyer professionals in your network may also be valuable sources for earning new clients. But, it’s important to consider rules around exclusivity and agreements.

Specifically, Rule 7.2(b)(4)(i) stipulates that referral agreements may not be exclusive, and Rule 5.4 prohibits lawyers from sharing fees with nonlawyers.

In other words, if a real estate lawyer refers a client to a realtor, the referral cannot be exclusive, and the lawyer cannot receive any payment beyond reciprocal referrals.

Allocating attorney referral fees

Beyond stipulations around referral agreements themselves, lawyers are required to keep detailed and transparent records on all shared or split fees, which can create burdensome logistical challenges.

For example, in accordance with the ABA’s Formal Opinion 475, when money paid is subject to a referral agreement between lawyers, that payment must be deposited into a trust account, separate from the receiving lawyer’s own property, before being paid out to any other lawyer.

Aside from safeguarding the money, notifying the other lawyer of the payment, and promptly delivering the amount owed, the receiving lawyer must also be able to provide a full accounting of the earnings.

While the logistics can be challenging, tracking them doesn’t need to be. To get a better handle on how to disburse funds, Clio’s Fee Allocation Report offers a useful means to quickly assemble detailed information on matter earnings and show what amounts should be paid to each contributing lawyer. Lawyers from different firms can easily consolidate their time entries through Clio Connect to share a matter between firms at no additional cost.

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Attorney referral agreement checklist

When building a referral agreement with another lawyer, be sure to consider the following:

  1. Do I have a written agreement with the partner law firm?
  2. Does this written agreement state that fees will be split either by proportional earnings or joint representation?
  3. Do I have the express written consent of the client agreeing to shared fees and how they are divided?
  4. Does the agreement state who is the primary billing law firm for the client?
  5. How is billed labor to be reported to each law firm?
    1. Fee Allocation Report
    2. Submitted timesheets
    3. Joint timekeeping records in Clio via Clio Connect
    4. Accounting to be completed at the time of referral
  6. Can my law firm’s trust account record client trust deposits and disbursement of shared fees? [/callout]

Interested in learning more about how to earn more client referrals? Read our free guide “Unleashing the Power of Referrals,” authored by Jared Correia, Esq, CEO of Red Cave Law Firm Consulting.

Download guide now

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