Malpractice Insurance and the Use of Retainers
Malpractice insurance is a racket. Yet it is a necessary evil. In my state, and most states, you can form a professional association, professional corporation, professional limited liability company, a corporation, or a limited liability company, and those structures won’t save you from being exposed personally for making a mistake, and exposing your personal assets. This is the reason I have a $2 million policy, per aggregate. However, one thing that in surname companies never covered until recently was cannabis.
To get this out of the way, I experimented with cannabis 36 years ago. I don’t like the side effects of the drug, but I am keenly aware that most people use it for the side effects. However, I am high strung, and I don’t like being drugged down to a level where I slow down and feel stupid. They call it dope for a reason. At the same time, I’m not against it. I don’t touch the cannabis plant, I only provide ancillary services to the industry, by consulting, tax consulting, entity structuring, tax planning, and tax prep.
When I get my malpractice insurance, I have to exclude cannabis. Until this year. There is a company that provides insurance for those that provide ancillary services to cannabis. However, it is a second policy, and it isn’t cheap.
I provide business consulting for cannabis clients, as well as business advice, entity structuring, tax consulting, tax planning and tax prep. How is this any different than the services that I already provide to any other business?
Like most people in this industry, I provide a free one-hour consultation. After that consultation, if I am asked to give free advice, that email is met with a consulting engagement agreement, which requests a retainer. Once the retainer gets below $500, it is recharged. This has cut down on those clients that just want free advice, and I explain the engagement letter and retainer as my insurance requires it. Every email, call, and even texts are billed against the retainer. How did I get to this point?
There was a time that I would offer a free, no time-limit consultation. Those consultations turned into phone calls, and emails, and began taking up a lot of my time that wasn’t billable, so I began sending a retainer agreement. What I noticed was the people seeking free advice left me alone and the ones who were engaged respected me.
To give you an example, I just had to order another cell phone. Clients get mine and seem to think that they can text at all hours of the day, as if I am on duty during Super Bowl Sunday, weekends, you name it. I even got a text at 2:30 a.m. Some of those people are on retainer, and some aren’t. The ones who are, I respond to, and bill them. The ones who aren’t are met with a retainer agreement, which will either get them to go away, or they will pay it.
Where my insurance company has an issue is that I am doing consulting for something other than taxation. However, I convinced them, and we are fine now. Malpractice insurance has become almost like health insurance. Your doctor gives you a prescription for an ailment. The insurance company rejects it starting that you have to get a pre-authorization from your doctor. Forget the fact the the doctor writing the prescription should have been their authorization, but I digress.
The reason I have malpractice at such a high level is that when I was a partner at a partnership, the main senior partner, who honestly should have retired years before he did, had so many claims against him he couldn’t get malpractice insurance.
Craig W. Smalley, EA is the CEO and Founder of CWSEAPA®, PLLC, located in Orlando, Florida, with clients all over the country in every industry. He has been admitted to practice before the IRS as an Enrolled Agent, and has a Master's Certificate in Taxation from UCLA. He has been in practice since 1994, specializing in individual, partnership...