The American Bar Association’s guidelines for referral fees contain some conflicting and confusing information. Because of the “exceptions” stated by the ABA, many lawyers are left unsure about what is ethical and what it not when creating referral relationships.
Concerned about breaking a rule and getting reprimanded, some lawyers choose to stay away from referrals altogether, thinking it’s easier to not get involved.
Not investing your time and energy into developing referral relationships is disadvantageous to your law firm’s revenue.
Outside of the obvious financial benefit of receiving a case, a client that found your law firm through a referral is one of the best types of clients for your law firm. Referred clients have already heard about how great of a lawyer you are and need much less convincing of your services.
If you’re interested in increasing your law firm’s referral marketing but are unsure about what is allowed and what is not, then keep reading.
Can Lawyers Pay Other Lawyers for Referrals?
Technically no, but in practice, yes (with rules).
Ethics guidelines outlining referrals stated by the ABA can be found in the Text of the Model Rules of Professional Conduct. Rule 5.4(a) of these guidelines state that lawyers cannot pay others for recommending their services. However, there are several exceptions to this rule that permit referral fees.
The exceptions listed in Rule 1.5 (e) of the Text of the Model Rules state:
- The division is in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation;
- The client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing; and
- The total fee is reasonable.
In addition, Rule 7.2(b) states that you must refer a client to a “competent” lawyer. Essentially, the attorney you are referring a client to must have the skills, experience, and resources to handle the case.
Can Lawyers Pay Non-Lawyers for Referrals?
The rules concerning referral fees between two lawyers are quite clear, but what about referrals from previous clients or a business professional?
The answer is no, you cannot pay referral fees to a non-lawyer. However, you can thank non-lawyers for referrals, you just need to get more creative.
4 Easy (and Ethical) Ways to Thank a Referral Source
You should always thank someone for sending business your way, even if you are paying them referral fees or even if the referral does not become a client of yours.
Any way you can make the referral source pleased with their decision to send you a referral will increase the chances of them sending you another referral in the future.
1) A Handwritten Letter
Because people aren’t accustomed to receiving handwritten letters in the mail anymore, sending a thank-you note is unique and impactful for the recipient. This presents a simple and cost-effective opportunity to show appreciation towards a referral source. Quick tip: Letters are extremely valuable in improving client service and should be written for more than just referrals. I always keep branded notecards at my desk so that I can quickly write a thank-you note whenever a situation arises.
2) Send Them a Gift
You are allowed to give “nominal gifts as an expression of appreciation that are neither intended nor reasonably expected to be a form of compensation for recommending a lawyer’s services” (Rule 7.2).
In other words, the gift needs to be appropriately priced and not intended or perceived as a bribe for the referral source to continue recommending your legal services.
At my law firm, we often send Omaha Steaks, and the gift has been well received and appreciated by the recipients. However, choose a gift that is best suited for your ideal client.
3) An Appreciation Dinner/Special Event
One great way to show appreciation to a referral source is to provide them an experience. This can range from a catered lunch or dinner to a movie night. Depending on the frequency, this can be quarterly, bi-annually, or annually. An event not only gives the referral source a wonderful experience, but it also allows you to build stronger relationships with your clients.
4) Public Acknowledgement
People love recognition. If you have a newsletter for your law firm, include a section to thank people for their referrals. Another great place you can shoutout the referral source is your social media page.