Firms Opt To Freeze Hourly Fees

As the financial crisis squeezes their clients, local law and accounting firms are facing increased pressure to hold down their fees.

The Hartford law firm of Pepe & Hazard and the West Hartford accounting firm Filomeno & Co. have announced freezes on hourly rates for existing clients in 2009, and other firms may soon follow their examples.

“It’s an economic crisis unlike any we’ve seen before,” said Louis R. Pepe, partner at Pepe & Hazard and a past president of the Connecticut Bar Association. “All law firms are going to be under pressure to control their costs and the fees they charge their clients as a matter of necessity.”

Pepe predicted that other law firms of varying sizes would follow suit in freezing rates in December, when firms traditionally set new fees for the following year.

Jill Mastrianni, chief marketing officer of Hartford-based Shipman & Goodman, said her law firm is currently discussing rates for 2009.

“Many of our clients are feeling the crunch,” Mastrianni said. “We have and will continue through 2009 to work with them to make sure their legal expenses don’t interfere with their decision to hire the right counsel. Our management team is currently reviewing 2009 fees, specifically with that objective in mind.”

Jeffrey Cooper, a law professor at Quinnipiac University School of Law, said the rate freezes are an issue of supply and demand.

“I don’t find it particularly surprising that firms aren’t raising rates,” Cooper said. “They will probably try to hold tight next year in order to keep the clients that they already have.”

Cooper said rate increases for most law firms have outpaced inflation in recent years.

Competitive Disadvantage

But certain types of law services are in decline because of the current economic downturn.

For example, any firm involved with business transactions, including mergers and acquisitions and real estate closings, will likely see less business in the coming year, he said.

Firms that do raise rates will be put at a competitive disadvantage and will risk losing existing clients, he added. “In an environment where clients are going to be rate sensitive, I wouldn’t want to get far ahead of my competitors,” he said.

Officials at the Hartford law firms of Robinson & Cole and Halloran & Sage declined to comment.

The rate freezes are indicative of pressures the global economic crisis has placed on law firms to remain competitive. Several major national law firms have dissolved, merged or laid off lawyers in recent months. The legal services industry shed more than 1,000 jobs in October, according to the U.S. Bureau of Legal Statistics.

Several local law firms have been affected. Earlier this year, the national law firm Dewey & LeBoeuf announced that it would close its Hartford office. In September, Tyler Cooper, a 161-year-old Connecticut firm, disbanded, closing both its Hartford and New Haven offices. About half its 48 lawyers were hired by a Rhode Island firm, while several others join Connecticut firms.

Last month, Thelen LLC, a major San Francisco firm that operated Hartford’s 11th largest law practice, dissolved. Robinson & Cole, Hartford’s largest law firm, picked up more than 30 Thelen lawyers, both in Hartford and other locations, including New York City.

Alfred Turco, managing partner at Pepe & Hazard, said many of his firm’s clients are in the hard-hit financial services industry. “We know that our clients are looking at cost controls,” Turco said. “It didn’t take a genius to understand that we could do well by them by not raising our rates.”

Filomeno & Co., which employs about 50 people, including 22 CPAs, and advises roughly 300 business clients, decided during a partners’ meeting two weeks ago not to raise hourly rates on new and existing customers next year.

“Everyone’s business is difficult these days, and everyone has to tighten their belts,” said Thomas Filomeno, president and chief executive officer of Filomeno & Co. “They can’t raise their prices to their customers, so the last thing they need is higher costs from the people providing services and goods to them.”

Both Turco and Filomeno said this is the first time in recent memory that their firms have not raised rates at yearend.

Carl R. Johnson, managing partner for Blum Shapiro, Greater Hartford’s largest independent accounting firm, said his firm had not been planning to freeze hourly rates. But it isn’t counting anything out, given what could be a worsening financial situation, he said.

“We might have to look at that and judge the times,” said Johnson, who said annual increases generally range between 3 and 5 percent. “We’re definitely going to have to wait and see what’s going on in the world.”

Cooper of Quinnipiac University School of Law noted that a decision to freeze rates means that the firms will take a revenue hit. He also expects hiring to be down next year and that pay increases will be kept to a minimum.

Turco of Pepe & Hazard said his firm is in the process of formulating a 2009 budget to manage its own revenues and expenses.

“Our will was to reach out to our clients first. We can manage our own adjustments later,” Turco said.