Michael J. Swanson – CEO Of Advocate Capital Inc. Shares The Benefits Of Financing Case Expenses For Contingent-Fee Attorneys on Business Innovators Radio

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MS: So we’ve really focused on that aspect of it, and we’ve taken advantage of the fact that around the country, whenever the bar has opined on case expenses and how they should be treated, they have consistently said that if a law firm decides to borrow money to fund those case expenses from a third party, such as Advocate, and if the technology is in place, such that the law firm can document, “This is exactly what I borrowed for this client. And here’s exactly the interest I paid to the lender for this client, specific to the penny,” they’re able to essentially get reimbursed from the case for the borrowing costs, just like all the other case expenses.

MS: So at the end of a case, when they sit down with their client, they will typically say, “Okay. Our fee is a third, and then we also had these expenses.” And they show them the receipts. “We paid this expert witness this much,” and such, and such. Well, our clients now have an additional receipt at the settlement, which is showing all of the case expenses they borrowed from Advocate for that particular case. And it shows the interest they paid us during the case. So they’re able to get back all of the borrowing costs they paid to us during that particular case because we’re able to keep track and document it. So we have about 480 law firm clients. As I mentioned, we’re funding about 75,000 cases. And we’re funding and tracking those, realtime, 24/7, so that our technology is standing by and ready to print out a receipt whenever they’re ready to close a case.

MS: So the value proposition, really, to try to help these plaintiff lawyers, is that they’re able to get back the cash that they’ve tied up in their cases, back out of the practice … Or they can leave it in the practice, too, but they’re able to get it out of the cases by borrowing it from us. And the net cost of borrowing on these case expenses is 0 for the cases that they win or are successful on. That’s about 95% of the time. So our clients get back, on average, about 95% of what they pay us. So the net cost of borrowing for our clients, on average, is well below 1% per year.

MS: So the concept is because we’re really only dealing with successful law firms, our clients don’t need the money. But we help them understand that, “Look, if you can get back the cash you have in your cases at a net cost of less than 1% per year, could you find something good to do with that,” right? And of course, they can. Every law firm’s different. They have different goals. We try to come alongside them at first, really, and just hear about their goals, and then help them understand how being our client could help them achieve those goals. They may be wanting to grow. Well, becoming our client would give them the capital, very low-cost capital, to be able to hire more employees, or to do more advertising, or to lease additional office space. They’d be able to help even more people in their community.

MS: And there are other challenges that they face, right? So there are law firms that can’t afford to prosecute their cases. Now, no one, they wouldn’t want to admit that, right? But if you walk into a law firm, and you need help on a case, it’s very hard to know, “Does this law firm have the financial resources to pursue my case?” And many of them don’t. So there are some conversations that happen around the country at contingent-fee law firms every day. One of them is, “Hey, we just signed up a giant case. It’s going to be very expensive. Let’s try to settle some of these other cases a little earlier so we’ll have the money to prosecute this big case.” Now, that shouldn’t happen. That’s malpractice, right, because the smaller cases deserve full prosecution efforts as well; but that’s a reality. Another reality is, “Hey, payroll is Monday. Let’s settle a few cases because we need to make payroll.” And again, that’s malpractice.

MS: So, you know, the ability to push forward aggressively on their cases that our clients have makes a huge difference. First of all, they’re going to get better results. And they’re going to get better results because they’re going to invest in the best experts and the best trial support. And that has a direct impact on the results they’re going to get for their clients. And they’re also going to shorten their time on-desk. The time it takes from signing a client up to concluding the case tends to shorten, because they don’t have to delay. They don’t have to wait a week or two to hire that expert on this case because they have other cases.

MS: So their ability to push forward aggressively, hiring the very best trial support that they can, shortens the time on-desk. So they can turn many more cases in a year than they used to be. And that has the effect of helping more people, and getting them better results for their cases, and increasing the law firm revenue over time; because if they’re getting better results, they’re getting more fees. And if they’re turning more cases every year, obviously that translates into more fees as well.

BIR: Well, it certainly sounds like a good plan to go with. Is this standard across the industry? Or do you still have to get this word out, and education, to plaintiff lawyers out there?

MS: Yeah, it’s funny. We’re kind of like the, I guess we’re the 19-year, overnight success story. We’ve been doing this since 1999. I’ve been involved since 2000. And yet, there are many, many plaintiff lawyers who don’t realize this service is available to them. And it’s taken us a long time, really, to perfect the ability to gain the right clients. So if you’re a commercial lender or a lender of any kind, people who really are in difficult spots will find you, right? They’re Googling at night to make cash or make payroll. And those folks have always been able to find us. We only fund one out of every four applications we take, because where we are is at the high-quality, low-risk end of the lending spectrum.

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Neil Howe

Neil Howe is a 3-time #1 Best Selling Author, Online Media Strategist and business radio talk show host. He covers the most Innovative Business Leaders in Small and Local Business helping them share their stories with the world.