WCI #361: Financial Pathways for Attorneys

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

This is White Coat Investor podcast number 361, the financial pathway for Attorneys. If you're finding our podcast informative and helpful, we would encourage you to sign up for our monthly newsletter. It is totally free and includes useful, actionable information not available on the regular blog posts or this podcast. It's almost like being in a secret club. The kind of club that can boost your knowledge and enhance your wealth at the same time with no strings attached. Sign up today@whitecoatinvestor.com Newsletter. You can do this and the White Coat Investor can help.

All right, welcome back to the podcast. It's good to be with you. You know I love seeing you guys in person. I recently went out to Kentucky and it was a little bit rough because.

We scheduled this talk, I don't know, six or nine months ago, and it ended up being the exact same time.

As the first round of the NCAA.

Tournament when Kentucky was playing. The game started literally 10 minutes after.

My talk started there at the Lexington Medical Society. So a little bit tough to compete with there. We still had a packed house.

It was a great session.

Unfortunately, Kentucky did not win the game, so I was a little worried the whole place was going to burn down that night before I left town. But it ended up being okay and I got to meet a lot of really great people. So it was wonderful to meet all.

Of you out there in Kentucky.

And most importantly, I just like talking to White Coat investors in person because it lets me know what you're worrying about, what you're thinking about, what's new in your lives, et cetera. There are quite a few medical students there and it reinforced something I've been noticing over the last few years, and that is this unexpected consequences of relatively generous federal student loan policies. There's a lot of students out there taking out loans that they don't actually need, or not paying back loans that they could pay back. And it really is affecting the way people are managing their student loans.

It's no surprise, I guess people respond to incentives, right?

That's the first law of economics. And when you make PSLF available to such a high percentage of doctors out there, they start managing their student loans in a different way just in case they end up going for pslf. So I don't know how long that gravy train is going to stay available, but I would certainly take advantage of it while you can. All right, Our quote of the day.

Today comes from Susie Orman said, money itself is not the end goal.

It's the freedom and options that money provides, which are so enriching. That's the truth. It's important to keep that in mind that as much as those of us who are hobbyists and personal finance enthusiasts love to talk about this stuff, it really isn't the end goal, and you certainly can't take it with you when you go. That's why it's so important to focus your life on the other stuff that matters. And for many of you, a big part of your life is your practice and what you're doing for other people. And it's not always something you get a lot of thank yous for or appreciation for. So if no one said that to you today, thank you so much for what you do.

All right.

Sometimes we get asked about bulk book discounts. We do sell our books in bulk for a discount. 25 plus. That's the number where we give you a bulk discount. If you order 100 plus, we'll give you an even bigger discount. But 25 is the number you got to get to. You can email that order to booksitecoatinvestor.com all four of the books, whatever combination you want. We'll figure it out and let you know what the discounted price is. Obviously, the Amazon price varies by the day. Amazon's constantly changing the price on the book, but the bulk discounts are always lower than anything Amazon ever sells them for. So if you're going to buy a number of WCI books to pass out to friends or med students that rotate with you or your residency class or whatever, that's definitely the way to go.

All right.

I've been talking to a lot of attorneys the last few months who want.

Us to do more for attorneys. They're like, we gotta get this message to attorneys.

Which is true. We do. A lot of what attorneys do in their financial lives isn't that different from doctors. I mean, 95% of personal finance is probably the same for everyone. But today I wanted to get a little bit more into the stuff that's different for attorneys. It's unique for attorneys. Whether that's educating the rest of the audience about what the lives of attorneys are like, which I think is good general knowledge, or talking specifically to attorneys, I thought it'd be a good chance to get somebody on here. So we're bringing on Chris Avery, who is a Personal finance enthusiast, been a White Coat investor for a long time. He's also an attorney, so let's get him on the podcast. I think it's a great episode and hope you find it as valuable of a discussion as I did.

My guest today on the White Coat Investor podcast is Chris Avery. Chris, welcome to the podcast.

Good morning.

Great for having me.

So Chris is not a doctor. Unlike many of our guests, Chris is an attorney. And so we're going to be talking about all things attorney finance today. You know, a lot of you had parents who told you that you could do whatever you want when you grow up, as long as it was a doctor or a lawyer. And what we realized is we've been talking about trying to reach out to more lawyers out there and trying to, you know, grow the WCI audience is we've never actually done an episode of the podcast aimed at attorneys. So today we're going to talk about the personal finance of attorneys and what things are the same as doctors, which is an awful lot of it, as well as a few things that are kind of unique. I think it'll be interesting for those of you who are not attorneys, because you probably never had a chance to really look at it from this angle, and I think there's a lot to learn, but hopefully it will also be very interesting to those of you who are attorneys. So let's get started. The audience doesn't really know you well, Chris, so let's start by kind of letting them get to know you a bit. Tell us about your upbringing and what it taught you about money.

I had a fairly standard upbringing. Grew up in the Midwest, two parent household, working father, stay at home, mother, and we didn't talk much about money. Right. I always had everything. My brother and I always had everything that we needed, but not necessarily, you know, everything that we wanted. So it was pretty typical. But money was not often a topic of conversation, and in some ways maybe that was a blessing. Right. We didn't know necessarily. We didn't see the parents fighting or discussing money or having money struggles. And it wasn't really until adulthood that I really had to start thinking about finances.

What did your dad do for a living?

He worked for an investment management company. So he was thinking about kind of macro finance, kind of financial on the global stage. And he started, of all things, he started as an analyst covering pharmaceutical companies and kind of worked his way up within that company until he was managing funds. It's interesting because even though he was kind of professionally in the business of finance, we Never really talked about personal finance. It was never a topic of conversation again. We knew that he saved and he invests and education was a priority, but beyond that it was never discussed.

Did that change when you became an adult?

It changed more just because I was more proactive. I started him asking more questions like what are we doing here? Why didn't you ever tell me about certainly Ross Rowan thing at the time that he was in business, but why didn't you tell me about these things? What are you doing? What's your plan? Especially as he got older, how was his finances structured? What was he doing to take care of himself in older age? It only came up because I asked him and when I asked him, he was happy to share about it. It's just something that was never discussed.

All right, obviously education was very important in your family. So tell us about your education, training, et cetera and your career so far, what you're doing for a L these days.

So went to undergraduate business school, got a degree in business management, a minor in finance. Thought I was going to be on a track to get a joint degree. Jd, mba, went to law school right after it's a three year program and then went into practice. I have somewhat of a atypical career path, right. So I started in an in house role, which is, which is not common for most early stage lawyers. I started in an in house role, rose to a rank where I was focused on privacy, data security issues, overseeing that on behalf of a Fortune 50 company. Then I took a step back. I was recruited away from that job and went into a big law law firm practice, recruited by a leader within that firm that was looking to grow that firm's practice in that area and did that for a number of years. Here's another atypical aspect of it is again because I'd started to develop some sense of financial awareness and my wife and I had always been good savers and good investors. I took a step back. So in 2015 we were expecting our twins and I was working in the big city, working long hours, working nights and weekends and we didn't want that. And I know there's a lot of working parents that would love the opportunity to stay home with kids, but I made a decision then to say I'm going to step back from a full time practice of law. The law firm was supportive of that. And so I went to a part time status where initially staying at home, raising the twins, working maybe five, ten hours a week there when they were very young. And again I worked at that law firm for a little over eight years, kind of in a traditional big law law firm practice. And I decided recently, last couple of years, to step away from that. I've opened up my own boutique law firm. So I specialize in a very specific area. Working with typically large corporate clients are kind of very discreet. Privacy and data security issues. And that's kind of been my practice today.

And your spouse working stay at home? What does your spouse do?

No, she works. She works in a corporate marketing role. We were having that discussion about, you know, what should we do. We thought that, you know, we wanted to be in a position where at least one of the parents could stay at home and for her and where she was in that role and within her kind of sector, she thought it would be a pretty big detriment to step away for a couple of years. So I said, you gotta practice what you preach. And I knew it was important, so I was willing to do that. And I didn't think it would be a detriment to my practice. And it really hasn't been.

Now, you've been interested in finance for a while. Maybe it's hereditary, maybe you get it from your dad, but I mean, you were studying finance even as an undergrad. So this is not a new thing to you. I didn't develop an interest really until halfway through my residency. I had no interest in college or medical school, in business or finance or investing. But this is something that you've been interested in for a while. How and why did you get interested?

You know, that's a good question. Because, you know, looking back when I was. When I was in first grade, so I was about six, the thing I asked for for my birthday was a checking account. So you're right, there may be some kind of genetic defect that led me down that path. But it was just a casual interest at that point. Right. More likely than not is because I saw my dad sitting at the kitchen T, working on bills, writing out checks, when people still used to do that. And so I want to do what dad's doing. I'm interested in that. But then there was kind of a big, you know, a big break there, right between. Even through college. Right. It almost seems like malpractice now. But I went to undergraduate business school. Not only was it not required a class on personal finance, it wasn't even an option right there. There wasn't a class to take. And so we were learning about finance kind of in the corporate markets of how to evaluate the price of a. Of a security. What's the Black Scholes option pricing model, things like that, that again, I don't use in my personal life and haven't really given much thought about in the last 20 years. So it wasn't really until really, as in practice, I had met my wife and we were planning to get married. And I was like, you know what, this is kind of a big shift for me. I'm no longer just thinking about myself. I'm partnering with someone. I've got, you know, two people that I'm responsible for. I'm not just planning for my life, but for our lives together. And then children only compounded that, right. Where I said, you know what, this practice of law is a great thing, but I'm limited by how many hours there are in the day, how much I can make as a function of how much time I can spend working. And that's not very sustainable necessarily. Right. And so what are the things, what are the levers outside of that that I can use to put ourselves in a better position? That's really where I took interest, where I said, you know what, I need a plan. And that's how I found you. So I was like, I need a written financial plan. And I found this white coat investor on a Boglehead forum. And my initial thought was, I don't know who this guy is. With a white coat investor, it's going to be some niche content that's hyper specific to the healthcare field, that's not going to be particularly relevant to me. And then I set aside my own kind of personal bias. I said, okay, let me look at this. And I was like, wow, this is amazing. This is what I needed to know to get started on that journey. And it's been kind of a journey ever since, right. Where it's like, I guess I would call myself a personal finance enthusiast where it's a hobby, it's great to learn about it. Even things that aren't necessarily particularly relevant to me of that progression overall of where are we going? What's our course here?

Yeah, now you're a planner, it sounds like. I suspect you're better at saving than you are at spending.

We are.

If you're like most personal finance enthusiasts, it's not necessarily difficult for you to carve some money out to invest. You get excited to invest money and you end up being successful enough that in 2015 you're able to cut back at work already relatively early in your career. And I suspect you're going to be, if not already early, to hit financial independence and have Lots of options in your life that pretty much sum up your personal finances.

That's a good summation. Yeah. We've always been good savers. We've always lived below our means. We've always kind of paid ourselves first. Knowing that what is the long term plan that it put us in a really great position to be able to even consider that kind of choice. Back in 2015, 10 years into practice, most people don't even have that option. And again, you just had to recognize kind of the blessing. Because my parents valued education, they saved significantly for ours. Right. And is back in the day we can still get pretty good scholarships for undergraduate and law school that, that a big chunk of that was, was paid for. So unlike many of my peers, was not saddled with a large amount of educational debt coming out of school. Really we were already ahead of the game. No thanks to anything that we've done.

Well, it's always great to get a little bit of help and I appreciate your gratitude for it. There's a large part of our audience is saving a lot of money for their kids educations and they just, you.

Know, they're more than willing to do it.

But I know they like to hear thank you every now and then.

So every time I look at that 401k, not 401, the 529 calculator on, on Vanguard, it makes me cry a little bit. Each year the cost of education goes up and up and up. It just doesn't seem to be sustainable. I'm not sure what undergraduate degree could justify paying that much, but we saved nonetheless. Yeah.

All right, well, let's talk about attorneys. Can you just sketch a broad overview of the career paths of attorneys? What does it usually look like as far as education goes, as far as business ownership goes, partnership goes, earnings goes. Give us a broad overview of what the field of law looks like from a financial perspective.

From a personal finance perspective, it's fairly diverse. So the typical attorney will have a four year undergraduate, three year law school. Typically during that law school period they'll do some kind of internship or clerk for a judge or working within the law firm. The vast majority of lawyers coming out of law school, at least those that practice law, will go to a law firm. But it's not necessarily the big mega law firms that most people think of when they think attorneys. 50% of new lawyers work in relatively small law firms. Less than 10 to 20 practicing attorneys. That's the typical path. Right. So either it's bifurcated. Right. When you're out of Law school, you don't have that residency, right? You need that experience because you haven't really learned how to practice law yet. You learn that in those first three to five years on the job. And so it splits between attorneys that go to law firms and then attorneys that go into some kind of other either government practice or working for a non profit or doing some other aspect of the entry level aspect of entering into law. And most lawyers will proceed on that path and typically that progression, if you're within a law firm within six to eight years, you'll know whether you're on some kind of partner track or a non partner track.

Six to eight years, that seems like forever.

It is forever. And most people don't find out until they're at the tail end of that. But most people actually, at least within the big law space, don't make it that long. It tends to be very grueling. There tends to be not a very good work life balance. And most people learn very early on, like this is not for me. And so it bifurcates, right? So there are a select few, maybe 20%. You continue on that path. Others will opt out, will look to a smaller firm, different types of practice. We'll do non typically lawyer fields. We'll go into, will go into business, will go into lobbying. We'll do some other aspect that, that takes advantage of their education, but not as the traditional practice of law. Others will go kind of in a corporate path. And so those are kind of the two or three big domains within the practice.

Now the lawyer pay is different from the way doctors get paid. Doctors have a fairly, you know, I don't want to call it guaranteed pathway, but you get in the pipeline, you come out the pipeline and you kind of know more or less what you're going to be making at least if.

You'Re going to be an employee.

You know, you can look at the salary surveys and you can usually get pretty darn to the average salary for your field if you complete residency. It's different when you come out of law school. Lawyer pay is often described as bimodal. You know, the Internet tells me the average attorney here in Utah in their first year makes about 90 grand. If I look at ZipRecruiter, it says the 25th percentile nationwide is about 79,000. The 75th percentile is about 128,000. And yet if you end up in big law, the first year, big law folks are making 245. And in their eighth year, if they make it that long, they're making about $550,000. So can you talk about that bimodal aspect of attorney incomes as well as what determines whether someone goes into big law or not?

Yeah, sure, happy to. So you're right, it is bimodal. On the kind of the right hand of the graph, there's a large, very thin peak, right? Those are the kind of the what you describe as the big law, right? Where in that first year they're earning 200,000 plus with bonus. And on the kind of the right hand of that graph is a much chunkier second node of the distribution, which is where most lawyers land. And again, those are kind of the half of lawyers that out of law school go and practice for a small firm where the range is a more typical range is between 60 and $85,000 a year. Certainly if you're in government practice, that could certainly is closer to that range than what you see in big law. And so what that means, because of the bimodal distribution means no one really earns the average. No one earns the median pay. And that falls somewhere there in the middle. And that's what I think surprises a lot of people when they're thinking about law school or even in law school. Being a lawyer is guaranteed to the riches. And it's not most lawyers, including myself, coming out of law school was on the lower end of that distribution because the selection criteria for big law is fairly narrow. Right. It's less than 10% of all law school graduates that are even considered for those paths. So what's the type of person that typically goes into big law? Typically it's based on your network, right? Because who's doing the hiring? It's folks that went to those schools. And so they often will show a preference towards other law school graduates that went to those same schools, some of the best schools in the country, or those folks that got a key clerkship after law school. And again, those are the folks that typically on the high end of their law school class, but also within that top tier of law schools, which is not the majority of law students or lawyers. And so it's having that good school, having that good network, and quite frankly, being in a position in life early on where maybe you don't have a lot of ties, you're willing to move to New York or Chicago or LA and sit in an office for 60, 70, 80 hours a week, billing those hours. There's some self selection there.

It sounds like where you go to school matters more for attorneys, at least attorneys interested in big law than it does in medicine. In medicine, for the most part, people go to a US Maryland school, and barring really particularly competitive positions in particularly competitive specialties, it doesn't matter. That's not the case for attorneys, is it?

It's not the case, but it really only matters for that first job. It's that first job where it makes the biggest difference of where you went to law school. In fact, I think it's really only on that first interview where they even ask you where you went to law school. After that, it's very much your performance on the job, the quality of your practice, and the nature of the type of law that you practice in. And where are you willing to practice. Right. There's a big difference whether you're willing to kind of live in a high cost of living city and practice that kind of law versus living somewhere else. The other thing that's somewhat different between lawyers and doctors is that lawyers don't have that much say in their area of practice that they may have had a particular interest when they went to law school. They may have even completed kind of a certificate program on a specific area while in law school or clerk to the particular thing. But often what lawyers find out is they get that first job and they say, you know what, Chris, you look like you like to negotiate oil and gas leases. Congratulations. That's what we want you to do. And that informs much of your practice. And that's the way that I didn't have a particular interest in privacy and data security when I came out of law school. It wasn't really even a topic of study within law school when I went through it. But that first job, that's what the particular need was. And that's kind of how I. How I grew my niche.

One thing I've noticed among the attorneys in my family, and I got a number of attorneys in my extended family, you know, one's went to big law. I ended up working in a big law firm for five or six years, I think, and decided he wanted to do something else. But I had another one that went to law school and came out and spent a number of years, but couldn't get a job at all. And it was kind of back when law schools were really packing their classes full of anybody that wanted to go to law school. It almost felt like it was a diploma mill. Is that still going on? Do you feel like there's a lot of people coming out of law school that aren't getting jobs right now?

It tends to be tied to the kind of the Overall economic cycle. So you're right. I think last fall the graduating, the number of graduates was 116,000 people that came out of law school all at once. And most of those, I think it's upwards of 90% will have jobs within that first year. But the reporting is pretty poor. Law schools are not incentivized to collect data about those folks that don't. But it is tied. So in 2008, a couple of years after I got out of law school, a number of folks were not able to get jobs. And the other part of it is that typically you won't know until after you pass the bar, the state bar, something that you study for after law school, where you're going to land. And so it can be very lumpy where a lot of folks will take intermediate jobs, take contract jobs, take other jobs, whatever, whatever job that they can get before they, they find kind of a full time position. So it is pretty common.

What are your options if you borrow six figures for law school and then, and then can't get a job? What, what do those people do?

Yeah, it's, they do anything they can, right? They, they take whatever job is, is out there. And I think candidly, it's good experience, right? You, you, you don't always get the job that necessarily you want. There's often, after you've been in practice for a couple of years, opportunities to do that. So if you don't find the first job, you look for the second, you look for the third. And there's increasing demand for what I'll call contract positions. Right. Law firms, corporate positions that don't necessarily want to take on additional headcount, but they have to staff up because of there's a big litigation or there's M and A that needs a lot of diligence. And so fresh lawyers will often take that track until they can land a more permanent role.

Let's talk about student loans for lawyers. The averages, when I look for statistics tell me that the average student loan burden coming out of law school is anywhere between 120,000 and $160,000 for, you.

Know, three years of school.

Obviously half of attorneys have more than that. What's the most you've heard of as far as student loans go for lawyers?

I think the most that I've heard of is in the neighborhood of $300,000. That's just the law school piece of it. Law schools today, the very best law schools today are charging upper 70s per year for three years. And then often students are saddled with Undergraduate debt. So they'll have four years of private undergraduate school with another two, $250,000. So it's not uncommon for lawyers that go to law students that come out of the very best schools to have a pretty significant debt level. Maybe not nearly as much as physicians, but they're still pretty significant.

Presumably most of that debt at those levels is going to be federal student loans, but today it is. Let's talk about what's different. Managing student loans for an attorney versus a physician. I mean, are there a lot of PSLF eligible jobs? Are employers likely to pay some of your student loans back for you? How long do you think most attorneys are carrying their loans into their careers, etc.

They're carrying them for a long time on average. I know just talking to some of my peers that graduated with me, there's probably a third of them that are still paying off their law school debt now, almost 20 years out of practice. So a significant number carry it for that long. Many of them got those loans when they weren't federally covered. It's a little bit different now. There's not as many PSLF positions. There's certainly government service that will qualify working for nonprofit hospitals. They're in house counsel, often will qualify. But because of the timing requirements and the relatively low salary, most folks, even if they spend a couple years being a prosecutor or public defender or working for government agency or for a state, will switch to a higher paying role before they can actually get forgiveness. So it's incredibly less common in the legal profession.

And they don't get the freebie years. What I mean by that is the years in training, like a doctor goes to residency for three years and then does three years of fellowship. They're basically making minimal if any student loan payments. But all those years count toward pslf. They might come out of their training, you know, and have six years already toward pslf. And the next year or two they're making minimal payments as well because they're still based on their fellowship pay. And so often they'll get six or eight years of minimal payments and then only have to make really a couple of years of real payments before getting pslf. So it doesn't sound like that's nearly as good of an option.

It's not as good of an option. And even in those early years, they're being paid more similar to a resident. Right. They're on the lower end of that scale where they're maybe making 40, $50,000 paying on their law school debt and their undergraduate debt along with, you know, doing all the other things that come up.

Yeah, that would certainly make the income driven repayment plans attractive to them. At least their payments would be low, but. But they wouldn't necessarily be making much progress toward them. Do employers offer much as far as benefits of paying back loans, that sort of a thing, or is that really the expectations, you just pay it off out of your salary?

That's right. That is the expectation. It's fairly uncommon for law firms or corporate employers to pay for that. Unless you're getting a degree in the context of you're going back and getting the LLM kind of a specialized degree in a particular area of law, which happens in the area of tax and a couple other areas, it's pretty uncommon that employers will offer that as a benefit.

What about scholarships? Were there a lot of scholarships around in law school or a lot of people on scholarship?

You know, it's probably between 20, 30% offer some kind of scholarship. I think it's changed kind of more recently. Again these become the size of law school classes have swelled that so many people are going to law school that there's less, less financial aid and less scholarships that are offered. Although you can still find a couple certainly that I did 2/3, 75% of my law school was paid for through a merit based scholarship. But that's not common. Yeah, that's pretty rare.

You talked about 116,000 lawyers or something like that coming out last year. That's dramatically more than doctors. Yeah, I mean for doctors it's more around 30,000 ish, 35,000 ish. Maybe that's a lot of attorneys.

Too many attorneys.

I guess there's that many jobs. No wonder a lot of them end up not practicing law, doing something else.

Their degree was useful for though, because.

That really does seem like an awful lot coming out.

Yeah, it is. And there doesn't seem to be a great sensitivity because there's really no recourse against the law schools for pushing that many lawyers into practice. That you're right. Many of them are driven to alternative forms of practice or maybe not even practicing within a law practice because there are so many and the demand is relatively flat. We've started to see the number of law school graduates somewhat plateau. Right. That certainly was a big increase through the 90s and 2000s and it's starting to slow. Just for that reason is that there's just not as much demand. And law firms, as they get bigger and as they consolidate are being more and more conservative with the number of new associates they Take on that. If you hear enough of your peers or the classes above you that aren't getting those jobs, you start to worry, wait, did I make a mistake by going to law school? It was maybe seen by some at one point as a, oh, it's a guaranteed of a good job, but that's no longer the case.

A lot of those schools are for profit. Do you think they're really kind of, I don't want to say scamming their students, but taking advantage a little bit of their students to make that tuition money, even though they know there's not that many jobs out there for them.

They'Re certainly acting out of their own self interest and it's in their own self interest to kind of act as gateways to the, to the profession. You have to go to an ABA accredited law school. You don't have to, but it's usually required in order to be qualified to, to sit for a bar exam. And so they know their place. And yeah, I think they are less sensitive to the fact that there's a good number of their graduates that maybe aren't going to be in the range of getting a kind of salary, at least in those early years that makes sense to pay back that debt. But there's a lot of kind of self interest in how they report. You see these surveys, the number of, of law school graduates that have a job within a year of graduating and they're somewhat selective about who they ask. They ask those ones that they work through the kind of the career placement office and they know they have a job but tend not to keep a very good connection with those that are maybe struggling to find that first job.

How hard is it to pass the bar?

You know, I don't think it's very hard. The biggest challenge is that law school doesn't really teach you anything about the law that you need to know in order to pass the bar. Right. Law school is largely a history class about if there was some magical state law that represented all the 50 states, what would that be? And that's not the way the bar exams are administered. They're administered on a state by state basis. There's a multi state component to it. But typically most law students will spend three years in law school and then we'll pay a bar prep class more money to study between graduating in June and taking that test in July. Really it's a test of endurance. It's typically two or three days, depending on the state. You know, when I did it, it was all in person. You're all kind of locked into a hotel ballroom, just sitting with, with paper and pen, writing out essay questions or taking multiple choice questions. It's not difficult, but there's, there's, there's a good number of folks that if you don't pass on that very first time, your chances of passing decrease for the second and third time and that typically most people will not reattempt the bar after the second or third failed attempt. So it's not, I don't think it's particularly onerous, but there are a number of folks that again, if they're not good test takers or have some other challenge with the exam, the time constraints with it do have some difficulties.

Okay, so let's say you want to change states, you want to go practice in a new state, do you have to take the new state bar or just the state specific component or what's the deal with that?

So it depends. So there's a series of reciprocity that certain states will recognize other state bars, especially if you've taken it within a certain amount of time. And they'll actually what's called, you'll wave into the state bar in that new jurisdiction. But there are limiting factors, right. You know, a lot of people recognize California, California recognize a lot of other states. Right. So the kind of the two pinnacle bars are California, New York, those tend to be the most difficult, the higher, highest failure rates, the most demanding. Those are both three day tests, unlike other states. So you have that option. There are other ways of practicing. So if you're in house often there will be a separate designation that you can get that if you're licensed in another state and you meet other qualifications, you can kind of have a limited admission to practice so long as you're in house with a client. But there's quite a bit, right. So there's a separate ethics component to the bar exam. And so if you haven't taken that within five days. So when I moved from, I was living in Missouri, moved to Connecticut, I had to retake that exam because I passed the first time, but it wasn't recent enough that I had to retake it. So it kind of depends. Most people that will not want to sit through that bar exam more than once will look and structure their practice to find areas where they can actually wave in.

One of the interesting things about medicine is that unlike most jobs, unlike most career fields, you don't actually get paid more to go to the big cities on the coast with high costs of living. A lot of times doctors get paid Less in San Francisco or New York and can make more if they're willing to live in Indianapolis. Or even better, some medium sized town in Texas or Iowa or something like that might be where the pay is actually the highest. What's it like for attorneys? It sounds like the big law firms are in LA and New York and those sorts of places. But what is it in general for attorneys?

Yeah, there's certainly a premium paid for moving to one of the big cities. New York, DC, LA, Chicago. That's where often the largest law firms will have their offices. And certainly what you describe as kind of the big law law firms, they're all based there. And again, those big law law firms are relatively few in size. Right. I mean, there's maybe, I don't know, generously 75, 90 law firms in the country that are kind of at that scale and are paying at that associate scale that you referenced earlier, around 200, 225 first year associates, but that's by far the minority. But there is a premium. Right. So if you want to work in big law, you're probably moving to a bigger city. Some of that has relaxed a little bit with COVID Right. Law firms have learned they were late adopters to remote working and the pandemic forced them to embrace technology because we're all walking around with our computers in our pockets and laptops that we can work really from anywhere for most of the professions. That's certainly an exception for some. But yeah, you're paid by far a premium to live in a big city. And in small communities, rules, there's not that same incentives to work. Most of what we do doesn't require kind of physical proximity to the client. Right. And so you go where those offices are located.

Now, obviously there's a pathway here for a very small percentage of attorneys to go into big law, you know, bust their butt for six or eight years, make partner, and then make even more big bucks. And maybe they're making, you know, seven figures a year as a partner in a big law firm. But let's talk about how an attorney can do well financially, not in big law. Can you describe the options there?

There's a lot of opportunity there. Right. I described that some 50% of new graduates go into kind of these smaller law firms. You can make a very good living even within a small law firm. And the key tends to be having some kind of equity, having some kind of ownership in the practice where you're not only benefiting from the amount of work that you're doing, but the junior associates that are under you, or paralegals or paraplegia professionals that are also doing billable work to your clients. And that's a great option. You know, the other other really good option to make a very good living is, is an in house corporate practice, you know, working for a hospital system or working for another company. That again, it doesn't tend to be until you get to those very senior levels, doesn't tend to net you seven figure salaries. But you can make a very good attractive living in a senior in house role. And that's often where those folks that want to opt out of a law firm partnership track will go to find a better pace of life, even though the pay maybe is not as generous.

Is it practical these days to go out and hang your own shingle and start building a practice and end up with other associate attorneys underneath you and paralegals working under you? Is that practical or really isn't these days?

It's still practical, but for a select few. So what this is what I did, this is what other lawyers do is often you'll get that experience, I have to be in house, but then also at a large law firm. And then you'll split out of that large law firm to get a little bit more independence, better economics, lower overhead and start a boutique practice. That is pretty common. We say, I don't want to work in one of these mega law firms that's got 1,000 lawyers and a lot of internal politics, a lot of overhead, a lot of other realities of practice that make it more complicated. Those kind of lawyers can do it. It's less common for a brand new lawyer to go and start their own practice. You just really don't have the same degree of training experience that you have to do. You don't have to. There are some that do it, but you really need three, five, six years of experience working with another experienced attorney before you're ready to kind of go out on your own. And then once you do, it is practical and it's pretty common that that attorney that goes out and hangs their own shingle will either do so in conjunction with another peer that is also a partner in the firm, or will bring a certain number of associates or paraprofessionals with them to maintain their practice.

I find it really interesting to look at the various areas of law, the various areas of practice, specialties, if you will, is what I compare them to within medicine. And I wonder, you know what, what are the high paying ones and what are the low paying ones? What's the orthopedics of law. What's the pediatrics of law? You know, I look at real estate and divorce and injury and bankruptcy and criminal law and immigration and intellectual property or estate planning or whatever. And I wonder, well, which one of these are the good ones, which one of the bad ones? I always think about bankruptcy and I'm like, well, that can't be very good. There's a bunch of people without any money you're trying to get paid by. But what's the difference in, you know, renumeration from these various areas of law?

Yeah, it's interesting actually. Bankruptcy can be pretty lucrative, right? Because they make sure that the lawyers make sure that they get paid. In any kind of bankruptcy resolution. It tends to be kind of two ends of the scale, right? So the most consistent, highest paying types of specialties tend to be corporate specialties, right? Intellectual property tax, corporate securities, high stakes litigation, antitrust or consumer class action is on kind of one end of the scale. The other is, believe it or not, plaintiffs, class action lawyers. The only people that make money off of class actions are the lawyers either on the plaintiff side or on the defense side. And they tend to do very well. Although it's much more inconsistent that you may work and have to finance these cases because they're on contingency. They may have to finance these cases and it may take years and years and years for them to come to fruition and then get one really big payday. But it's much more speculative. But if you're looking for just kind of the consistently well paid, it's kind of in that corporate domain of whether it's white collar defense, corporate securities, tax, intellectual property, those tend to be at the higher end of the range. The ones that you mentioned, real estate, divorce, personal injury, bankruptcy, you know, not necessarily. Right. Again, bankruptcy is very hit or miss because it's so tied to the economic cycle of when things are going really bad, the bankruptcy lawyers feast. But when they're not, they find different areas where they can expand their practice so that they can stay busy all the time.

What about estate planning? Does that typically pay well or not really?

It's somewhat in the middle. It's certainly one of the more high risk areas of practice. And so there is some recognition of that in the pay, but it's certainly not some of the on the higher end of the pay scale.

You know, the average person knows about criminal lawyers, right? From movies, from TV shows. They don't know that most lawyers are in a cubicle working on tax issues. What about Criminal law, these high profile defense and prosecutors, is that pretty well.

Paying or not really?

Yeah. So I mean certainly on the prosecutor side it's not. Those are government jobs and they make a fairly decent living. But it's typically at a government scale, whether you're at the state or the federal side. Where those folks make up for it, if you will, is they spend those first five, 10 years of practice refining their craft and then go into private practice where they can make more. But even criminal defense is not, you have the same collection issue. It's criminal defendants, especially once they've been convicted, don't necessarily have the financial means to pay for you. And so in that area of practice you see very large retainers so that the lawyers can get paid upfront. And there are some, there are some exceptions, kind of these celebrity criminal defense attorneys that kind of build a brand and can do very well for themselves, but certainly not typical.

Yeah, it sounds like they're pretty rare. They're the celebrities, as you mentioned. What about malpractice? Cheap, expensive? What's it cost?

It's not too expensive for most lawyers. Most law firms kind of spread that risk out. I think I pay, I think in the neighborhood of $2,800 a year for fairly decent coverage. Million dollar claim, 3 million in aggregate. Typically what we see is you can get kind of a pretty good insurance coverage at a pretty good rate for those first two years and then they start to step up the rate in each year. Especially as you're looking to any kind of lawyer, malpractice typically is well in the past. And so there's a large focus on looking and making sure you've got good coverage for kind of any historical periods. And so they know that you need to have that continuity coverage. And they know that if you there's some disincentives from switching insurance companies in order to maintain that coverage and they're able to escalate that rate up. But my impression, it's nowhere near what doctors face.

Does it get used very often?

You know, it's a mixed bag. Historically it had not right that for better or worse, lawyers and law firms have been hesitant to sue other lawyers. Where most lawyers faced exposure was through kind of their state grievance process. Right. Lawyers that mishandled client funds or were not communicating or dealing with substance abuse issues and being negligent, that started to change a little bit. Corporate clients don't care about suing their own lawyers. And so if there's mistakes in the big deal or I mentioned estate attorneys There's a lot of exposure there because you're making some very good educated bets about what will be defensible in the eyes of the tax report and that will change over time and that there are very few guarantees and it's generally high stakes. And so when things go wrong, there's clients are more inclined to sue their lawyers. I think I read a statistic recently that said something like 66% of the malpractice cases are against solo and small firm clients. So maybe not as much exposure on the big law side, but it's out there. When it's out there, it's typically pretty sizable. You don't have necessarily the same potential limits you see in the area of medical malpractice that, you know, there are large companies going after large law firms for 30, 50, $100 million.

Doctors worry about getting sued, right? I mean, a big point of my asset protection book was they're actually really. It's really unlikely to lose any personal assets in a lawsuit. But they lay awake at night worrying about it. They think about it as they practice during the day. Do attorneys worry about that?

I don't think they worry about it as much as doctors. I think that they feel lawyers feel much more comfortable within the entities that they practice law and the protection that that can provide them and don't spend as much time worrying about asset protection. And maybe it kind of goes the other way, right? Maybe they should be more concerned about it, but historically they're not. They're not as concerned about it that typically if there is a claim, it's relatively small dollar amount, less than $200,000.

A lot of young doctors use a doctor mortgage to buy their first home. It allows them to put down less than 20% without having to pay private mortgage insurance. And a number of our doctor mortgage lenders that we have featured at the White Coat Investor also do these sorts of mortgages for attorneys. Do you get a sense that attorneys use these, that this is a big piece of their financial life and financial plan? Or do you think they all just save up a down payment and get a conventional or pay pmi? Do you get a sense for whether.

Those get used very often?

Yeah, they don't get used. There's just not as much history for the use of them. The relatively recent advent where you see these lawyer friendly loans. So it's not as common. I think it's probably more and more common now, especially with for recent law school graduates that have just an overwhelming amount of debt to use those kind of things. Because if you're going to buy property in one of these big, high cost of living cities, it's incredibly expensive. But traditionally it's not. Most lawyers are getting traditional financing or they're saving up some amount, usually not as much as they probably should, but saving up some amount to qualify for a traditional mortgage. But I think that's probably changing some.

You know, doctors interact with lawyers for the most part in two ways. One's malpractice, obviously. The other one's estate planning. And I'm curious if a typical attorney, not an attorney that's, you know, an estate planning specialist, but just a typical attorney, should they be doing their own estate planning or is this something they really need to go hire a specialist for?

They need to hire a specialist. It's somewhat cliche, but what's the kind of the standard line a lawyer that represents himself has a fool for a client? It's like any other specialization, right, that you shouldn't practice outside of your area of focus. It's too complicated. The rules are always changing. This is not something that you can do by kind of form or template, right, where you can download and do yourself. You didn't learn kind of this area of practice in law school. Notwithstanding how many trusted estates courses you took, you really do need to hire professional. Just like doctors, right? You wouldn't necessarily treat yourself because you're not always necessarily as aware of your own kind of your shortcomings and limitations. You're more prone to make mistakes. It's the kind of thing that I've never done. My own estate planning wouldn't even think about it. I go higher that out because I'll spend less time and less money hiring a professional than trying to do it myself. And I'm more inclined to make a mistake. More inclined to make a mistake if they're venturing into areas that they don't routinely practice in. Even for estate planning, we see estate planning is one of those things that often is a companion practice for solo or small law firm. I do corporate transactions, I do estate planning. I do everything on the side. And it's one of those areas that especially kind of at the higher end of estate planning, if you're using it to try to get some kind of tax advantage, you really need to go to a professional that does that full time, all the time, that has the experience in that area, because it's not something that something you can just pick up on the side.

I want to give you a chance to talk to the attorneys listening out there. What can you Tell them about personal finance and investing, that, you know, if you could sit them down for two minutes or five minutes and actually, you know, grind something into their head about personal finance and investing, what would you tell them?

Gosh, it's, I think it's many of the things that, that you talk about in this program that's part of why kind of love the work that you and your team do. But there's a disservice that was done, right? We should have been learning about these topics. Many lawyers are run businesses or have P and L responsibilities. We didn't learn about it in undergrad. They don't teach it in law school. And so you have to take the time to kind of understand this discipline, right? It's, it's all the maxims that you think about, right? You have to pay yourself first. You have to live below your means or it helps to live below your means. You have to pay your high interest debt as soon as possible. Avoid revolving debt. Low cost index funds are amazing. And to give yourself some grace, you're going to get it wrong. I think for a lot of type A attorneys and maybe type A doctors, they're like, I need perfection. I want it to be right. And that's just not the nature of this. You're going to make mistakes along the way. Give yourself some grace to learn from others. And probably the most important thing is have a plan. I mean, no lawyer would go into a complex litigation matter without a plan. No lawyer would go into any kind of engagement without a plan. So many lawyers go into their financial affairs with no plan. It makes so little sense that people don't spend a little bit of time to work on kind of where they're headed so that they can know you have a sense of kind of where you want to go. You have a much better chance of kind of being able to get there along the way.

Now, if you could design a three or four or five podcast series, three or four or five episodes for attorneys, what subjects would you cover in those?

It's a good question. So many of the things that are relevant to doctors and healthcare professionals are just as relevant to us. I'm a routine listener to the program and there's maybe 5% of the things that don't necessarily have a tracking. And so much of what your material already covers is relevant. But if I was going to pick three to five different things, I would look at how to deal with your educational debt. Even your service, studentloanadvice.com would be a wonderful service to Many of the new lawyers out there that are looking to manage their educational debt in context with their other financial priorities. A particular area that would be of interest would be somewhat mysterious about the path to partnership and how you buy in and that law firm economics behind how you become an equity partner in a law firm and what that means. And so that could be of interest particularly to a lawyer. Beyond that, I think most of the other things that you cover are right on target and are as equally relevant to legal professionals as they are to healthcare professionals.

Awesome.

Well, Chris, our time's getting short. I think this has been super educational. I've learned some things and I think most WCIers have learned some things, whether.

They'Re in law or not.

And hopefully it was also helpful to some lawyers out there to hear from somebody who's been financially successful as a lawyer and can kind of help guide.

Them along their way.

So thank you so much for being willing to come on the White Coat Investor podcast.

Thank you.

All right, that was fun. It's always good to get some more voices on here and hear a little bit more about other professions and kind of broaden the WCI audience a little bit.

As always, we'd like to hear comments from you. Shoot us comments.

Editorwhitecoatinvestor.com, let us know what you like, what you don't like about the podcast. If we have somebody on as a Friends of WCI episode or an interview and you'd like to hear more from that person or you thought they did a bang up job, let us know. You know, obviously I'm not going to be doing this podcast until I'm 95, right. And so we want to make sure that it outlives me. So let us know what you like, what you don't like, and we'll try to incorporate that and get some bus insurance for this podcast, which of course is if I get run over by a bus, what are we going to do for the next episode? So let us know what you like. If you enjoyed this episode. Hearing about attorneys. If you enjoyed hearing from Chris, let us know that. And as well as everybody else that we have on the podcast.

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