Overcoming Trust Account Management Challenges

Episode Notes

Transcript

[Music]

Intro: Welcome to The Digital Edge with Sharon Nelson and Jim Calloway, your hosts both legal technologists, authors and lecturers invite industry professionals to discuss a new topic related to lawyers and technology.  You’re listening to Legal Talk Network.  

Sharon Nelson: Welcome to the 163rd edition of The Digital Edge, Lawyers and Technology.  We’re glad to have you with us.  I’m Sharon Nelson, President of Sensei Enterprises and Information Technology, Cyber Security and Digital Forensics Firm in Fairfax, Virginia. 

Jim Calloway: And I’m Jim Calloway, Director of the Oklahoma Bar Association’s Management Assistance Program.  Today, our topic is Overcoming Trust Account Management Challenges.

Sharon Nelson: But first we would like to thank our sponsors.  We would like to thank our sponsor, Nota powered by M&T Bank.  Nota is banking built for lawyers and provide smart, no-cost IOLTA account management.  Visit trustnota.com/legal to learn more.  Terms and conditions may apply.  We would like to thank ALERT Communications for sponsoring this episode.  If any law firm is looking for a call, intake, or retainer services available 24/7/365 just call (866) 827-5568.

Jim Calloway: We’d like to thank our sponsor, The Black Letter Podcast, a show dedicated to making law exciting and fun with informative interviews and advice from esteemed guests.  We’d also like to thank SCORPION.  SCORPION is a leading provider of marketing solutions for the legal industry.  With nearly 20 years of experience serving attorneys, SCORPION can help grow your practice.  Learn more at scorpionlegal.com.  Our guest today is fintech expert, entrepreneur and executive Paul Garibian who had spent nearly 20 years helping financial institution drive product development, grow revenue and market share.

Paul currently serves as president of Nota an innovative legal industry fintech by M&T Bank that adds value through increased productivity and increases compliance risk, built primarily for small law firms and solo attorneys, know to help simplify and personalize business banking.  Thanks for joining us today, Paul.

Paul Garibian: Fantastic to be here.  Thank you for having me.

Sharon Nelson: Paul, let’s start off this way.  I think a lot of the challenges for new and established law firms are not known to folks, they don’t know that they’ve had been challenged until they’re in the soup already.  So, what would you say are the IOLTA management challenges for both new and established law firms?

Paul Garibian: I think a lot of it has to do with the cycle of the law firm and — You know, wearing that kind of development life cycle, the law firm is.  You know, and that — to answer that question, we need to talk about the attorney journey.  And as you know, a lot of attorneys go to law school, then they most likely work for a medium or large size law firm.  And after that, they decide to hang their shingle and open their practice.  And what they find out is that managing dial the account — First of all, there are a lot of attorneys that don’t recognize that a lot of the cases they work on require an IOLTA account and how to set that up.  And another challenge in the industry is that a lot of financial institutions were particularly people working in branches don’t have experience setting up dial the accounts properly.  And as a result, that creates unnecessary risk for the attorney if the IOLTA is not set up properly.  

And then there are treatment – So, the short answer is, the knowledge on the intricacies around IOLTA account is the number one challenge.  We’ve come across attorneys in industry that did not realize that they shouldn’t be running certain transactions, and cases, or contracts through their business checking, or in some cases even personal accounts.  And as a result, that puts them at the major risk of this department and you know, not being compliant.

Jim Calloway: Can you estimate how much time a typical lawyer in solo practice spins on IOLTA and business management? 

Paul Garibian: You know, there are different numbers out there, and Jim, we looked at quite a few reports on some of the, you know, reputable sources in industry.  And that number largely varies based on supporting staff they have, the digital tools that they use, you know, whether it’s rapid adoption or practice management software, or accounting software, et cetera.  So, I will say that number can be anywhere between, you know, 30% and 50% in some cases, business management, not just IOLTA by itself.

Sharon Nelson: Interesting.  Well, I’m going to ask you about common mistakes, but I will note that I was an auditor of law firms or lawyers who were in trouble because of their trust accounts, and either they were too eager to get the money.  And so, they were putting it in their regular accounts when they shouldn’t have been, which of course they cannot ethically do, or they simply were not reconciling the trust accounts which led to all kinds of problems.  

(00:05:10)

So, Paul what would you say are the most common mistakes that lawyers make in trust account management? 

Paul Garibian: You know I would say it both comes down to knowledge and knowing the intricacies I would say in the requirements, and I would say 99% of the time people get in trouble as you experience sharing, I’m sure with your experience and background, it’s just lack of knowledge, you know.  Of course there are people that, you know, intentionally break the rules.  But for — I would say based on our experience, 99% of the time it’s just like, I did not realize, you know, those are clients’ funds and that needs to run through dialed, I did not realize that the payment processing fees cannot get the client’s funds dialed account.  That’s the fundamental issue.  And as a result, you have certain personalities that are very detail oriented and spend extensive amount of time studying the requirements, because that gives them so much anxiety and would certainly, you know, experienced attorneys that take this very seriously.  And as a result, they’re probably closer to that 50% of the business management because they’re very hands-on, they don’t delegate this to other folks.  And as a result, end up spending a lot more time in business management than helping their clients, which is problematic from a pure business standpoint.

And then, you know, really having those guardrails to keep you on track, is another thing that the industry is missing.  You know, trying to say, “Okay, fine.  Now, I’ve learned the rules, I understand what my state requirements are, I understand what the ADA requirements are, put together the right tool stack between my PMS and accounting system, and I have the right processes.”  But now, how do I try to automate a lot of it, or at least operationalize a lot of it, so that way, it’s basically a very simple process for, you know, as the practice grows to be able to stay on top of things.  Because once you fall behind it becomes much more difficult to remember all that client matters and reconcile them, you know, if you’re doing it once a year, for example.

Sharon Nelson: That would be a very poor practice.

[Laughter]

Jim Calloway: Certainly.  Well, Paul, we’ll have to talk about the negative now, what are the potential consequences for mismanagement or errors?

Paul Garibian: They’re very severe, you know.  Unfortunately, disbarment is more common than most people know and we’ll certainly come across attorneys that have been through that process, and it’s not a fun process, because you’re putting your entire livelihood, and all the work that you’ve done at that point at risk.  And so, you know, ethics committees take those things very seriously.  And of course, you know, Sharon, you probably can speak to this a little more than I, but you know, how that process works.  But the ultimate thing that can happen is, you know, Jim as you get disbarred, you lose your license.

Jim Calloway: Well, that’s a sobering thought.

Sharon Nelson: And generally, as you know the client will turn somebody in because they sense something is wrong, and you don’t necessarily go there as an auditor looking for the trust account.  But, you know, you just find usually in offices that are amidst, there are a lot of things including the trust account.  

Jim Calloway: Well, before we move on to our next segment, let’s take a quick commercial break.

[Music]

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Jim Calloway: The Black Letter Podcast demystifies complicated law and business issues by breaking them down into simple understandable bites.  Hosted by Tom Dunlap of Dunlap Bennett & Ludwig, this show features fun and informative conversation with the esteemed guest, like CEOs and former AGs of the CIA.  You can listen to Black Letter today on iTunes, Google Play, Spotify or wherever you get your podcast.

Sharon Nelson: Welcome back to The Digital Edge on the Legal Talk Network.  Today our subject is Overcoming Trust Account Management Challenges.  Our guest today is Paul Garibian, the President of Nota, an innovative legal industry fintech by M&T Bank that helps solo and small firms simplify and personalize business banking.  

So, I think a lot of the times attorneys might avoid dealing with IOLTA altogether because of the workload and potential penalties, has that been what your experiences, Paul?

Paul Garibian: Sharon, you’re absolutely right.  A lot of the times knowing, you know, the potential risk of disbarment, and we talked about that earlier in the podcast, plus the stress that it creates.  

(00:10:07)

Attorneys tried to avoid creating an IOLTA to begin with, and that’s not necessarily the solution.  And as a result, they say, “Well, I’ll structure my cases a certain way where I don’t have to use an IOLTA,” and that’s not necessarily — you know, it’s a bit of a gray area to be honest with you.  In my view and my recommendation, everything that the team and I have seen, it’s always better to be on the safe side, it’s just have a process just like everything else that addresses things properly to avoid any kind of gray areas and creating unnecessary risk to the practice and ultimately the attorney.  And so, you know, setting it off properly working with a bank that has the experience in doing it, I think it’s a very important stuff.  

Jim Calloway: Well, why don’t you outline some of the best practices you’ve seen in trust account management.

Paul Garibian: Trust account management is no different than operational excellence of any business.  And I think it starts with kind of building that operational muscle and doing things, so on, on a regular cadence or regular basis and figuring out a process — you know, and we have attorneys that have made the decision to manage their trust account themselves, or delegated this to a trusted confidant to support them in managing that process, but of course with necessary checks and balances to do that.  But one common theme that we see with folks that really stay on top of things is doing it regularly.  You know, if you’re doing it quarterly, if you’re doing this annually that is probably not great.  The best way to do it is, you know, to block time in your schedule once a week or so.  We have attorneys that have a large number of client matters that do it daily, you know, spend 5-10 minutes and really staying compliant.  

And I think to me, it’s more about — and it doesn’t come naturally to a lot of folks that, you know, when you’re running a practice, you really running a small business.  And like any other small business, it’s very important to stay two things closely or having a process that help gives you that traceability and transparency to be able to understand how things happened and will stop the paper trail or the digital trail to be able to accomplish that.  And so, that is the biggest thing, especially now with rapid adoption of practice management software, you know, having your practice management software talk to your IOLTA account certainly helps create that efficiency and be able to save you time.  So, you’re spending five minutes a day or 20 minutes a week doing it versus, you know, hours and hours and not being able to recognize the numbers at the end, which causes a lot of frustration.

Sharon Nelson: Paul, let me ask Jim a question here if we can side track for a moment.  Jim, I know what we see in Virginia law is office managers rating trust accounts, as well as operating accounts.  But since we’re talking trust accounts today, that’s something that we see fairly often, which of course would be stopped if somebody reconciled on a very regular basis.  Do you see that too out in Oklahoma? 

Jim Calloway: We certainly seen some cases of that, not as many as you might think.  What I see a lot of is small firm lawyers to just kind of do it in their head, and they say, “Okay, I’ve got $5,000 from the client, I spent $3,000 on this, $2,000 on this $1,000 on this, and less $1,000 went for this.  But one of those bills is $988 and not $1,000.  And boy, when you leave those little odd numbers throughout the year of accounting, it’s impossible miss to untangle.

Sharon Nelson: Yes.  I had noted that.  Well, there are some advantages, I think, Paul to a larger firms having — you know, having the larger firms do better in managing trust accounts.  And some part of that I imagine is due to just having other people do it so it doesn’t get lost and not done.  What advantages do you think larger firms have?

Paul Garibian: It stop — the economy of skill, Sharon, and being able to have the supporting staff that specialize in kind of doing the trust account, bookkeeping and understand the basic principles in particular states that attorneys operate in.  So that’s really the advantage, and the wonderful thing about 2020 and 2021 is that we’ve seen so many great digital solutions out there that help take away that advantage from small, medium and large-sized firms, and really enable the entrepreneurs, the solo and small law firms, which is wonderful to see where you see that empowerment and so much efficiency coming from, you know, all the tools and processes that are being put in place for smaller firms.

Jim Calloway: Paul, I’ve noticed also — I’m going to throw in an extra question here.  I’ve noticed also some lawyers seemed to have stumbled more that they — when they went to paperless statements instead of receiving a traditional bank statement, have you seen that?

Paul Garibian: We have, and one thing to watch out there is to make sure that you have the paper trail and you have seven years of data archived on your behalf or for you, so that way it’s easy for you to access it then.  

(00:15:04)

And so, it’s very important to understand what that data repository structure is for all the partners that you worked with whether that’s a financial institution, a practice management provider or your accounting system.  You know, it’s very important to keep all that data for seven years just to the input standing, and you know, in case any audit or anything comes up.  

Jim Calloway: Right.  It’s very important to download that monthly because if you think you’re going to be able to go back five years ago and look at that statement without paying the researching fee to the bank, you may be wrong.  

Paul Garibian: Yeah, absolutely.  

Jim Calloway: What types of resources are out there for lawyers to help them understand and manage their IOLTA accounts?

Paul Garibian: So, there are quite a few actually, and it comes down to what the attorney particularly needs.  So, this problem is solved for multiple angles, so you have a solution from accounting software providers like QuickBooks and authors in that space, practice management software providers, also try to tackle and simplify the IOLTA management piece.  And that is absolutely a great place to start.  But one thing, and this is how Nota was really born, is that we’ve realized that neither the accounting side of the house nor the operational practice management side of the house is really connected to financial services and the bank statements, and to your point, being able to — attorneys still need to go back and manually reconcile their IOLTA on their bank statement, print the bank statement, and that’s where the inefficiency is coming to the picture.  This is how Nota was born.  

Jim Calloway: And of course, your State Bar Association may have resources particularly if you have a practice management advisor on staff.

Sharon Nelson: Don’t make me feel bad coming from Virginia.  

[Laughter]

No PMA here.  I wish we had you, Jim.  

Jim Calloway: Before we move on to our next segment, let’s take a quick commercial break.

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You went to law school to be a lawyer, not an accountant.  Take advantage of Nota, a no-cost IOLTA management tool that helps solo and small law firms track client funds down to the penny.  Enjoy peace of mind, with one click reconciliation, automated transaction alerts and real-time bank data.  Visit trustnota.com/legal to learn more.  Terms and conditions may apply.  

Welcome back to The Digital Edge on the Legal Talk Network.  Today, our subject is Overcoming Trust Account Management Challenges.  Our guest today is Paul Garibian, the President of Nota, an innovative legal industry fintech by M&T Bank that helps solo and small firms simplify and personalize business banking.  So, tell us Paul if IOLTA management becomes more efficient, what difference do you think that would make for the legal industry? 

Paul Garibian: Sure, I love that question.  That’s one of my favorite topics to talk about, and I really think that the core of our society is the private practice attorneys particularly, the solo and small firms that really make a difference in the lives of our communities.  You know, M&T Bank has always considered itself and all the track record that it has is the bank for communities.  And one of the things we try to do is to empower the small and solo law firms to make an impact with those communities.  So, what we hope will happen as attorneys become more efficient, not only operationally, but also with their trust account management, and just overall their practice management side of things.  We hope that that creates efficiency, that creates more affordable legal services for the community.  And as a result, a lot of the legal matters that get on address, especially with the underbanked now, and the communities that currently cannot afford legal services among many other things.  They’ll start getting access to those services and hopefully that will make a significant impact to the communities that we live and the people in those communities that currently are underserved by both legal and the financial services side of things.

Sharon Nelson: I kind of have a follow-up question that I think a lot of listeners would be interested in.  First of all, I think they’d like to know how to find out more about what you do, so tell them how they can do that.  

(00:20:04)

But the other thing is, you know, they’re going to listen to this and they’re going to go, “So, what does this cost?”  So, can you give me two sort of answers to that, it doesn’t have to be extended but that that’s what will make them pick up the phone?

Paul Garibian: Happy to share.  So, Nota is, as I kind of talked about is, you know a fintech, or I would say a digital bank for solo attorneys or small practice attorneys.  And so, you can learn more about us on trustnota.com, and we’ve started with trust account management, but now we’re quickly adding additional financial services products, like the business checking account and consumer checking account, and hopefully the business credit card as well to provide personalized banking products that create solo and small practice attorneys lives easier, more efficient.  And so, the beauty about Nota as well is that, you know, there is — it’s a no extra charge.  The only reason I just can’t say that it’s free is because it’s your traditional banking.  We certainly take advantage of some of that benefits that a bank has of storing your deposits.  So, for that reason, we can’t say that it’s free.  But there is no extra charge, in other words, we don’t charge for Nota.  We provide all the notice services in exchange for your banking relationship, whether you end up taking our trust account or a business checking account or any other product.

Sharon Nelson: That’s very helpful.  Thank you, Paul.

Jim Calloway: You know, the idea of a bank for lawyers had me thinking before we started recording this podcast.  What would a bank for lawyers mean for the legal industry?

Paul Garibian: You know, one of the reasons we believe in this bank is because we could can make a difference in our community’s life, which is the legal community.  And as a result, that legal community can make even a bigger impact to the remaining communities that it serves.  That’s the hope.

Sharon Nelson: Well, very noble, of course.  And I really want to thank you, Paul, for taking the time to join us today.  I think there’s a lot about IOLTA that people don’t really know, lawyers don’t really understand some of the implications, they know about it, they know a little bit about the ethics.  But this, this went into some detail which is very good and hopefully, they will think about their IOLTA practices and whether they could perhaps make them better because that’s one of the things that gets lawyers into trouble a lot.  So thank you for joining us and for sharing your knowledge with us, it was really a very helpful podcast.  

Paul Garibian: Thank you so much for having me.  

Sharon Nelson: That does it for this edition of The Digital Edge, Lawyers and Technology.  And remember, you can subscribe to all the editions of this podcast at legaltalknetwork.com or an Apple Podcast.  And if you enjoyed our podcast, please write us an Apple Podcast.  

Jim Calloway: Thanks for joining us.  Goodbye, Miss Sharon.  

Sharon Nelson: Happy trails, cowboy.

[Music]

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