CBC MARKETPLACE: YOUR FINANCES »
Pre-paid legal services: Worth the money?
Broadcast: April 11, 2000

Ever wanted to pick up the phone and call a lawyer, comfortable with the thought you weren't going to be hit with hefty fees?

You can if you subscribe to a legal services plan. For a fixed monthly fee you can get phone advice and discounted hourly rates with a lawyer at a law firm.

But in buying a membership to one company, Pre-Paid Legal, you may end up selling it. Therein lies the tale of dreams made. For some, it's a dream lost.

What Pre-Paid Legal is selling is a service for which you pay up to $25 per month. The concept is simple: For that fee, the member has telephone access to advice from a lawyer. And there are other benefits: contracts and documents reviewed, a free will, and discount hourly rates for legal work. It's available in Ontario and B.C. and it seems the idea is catching on.

Call Pre-Paid's 1-800 number it brings you to the downtown Toronto law firm of Mills & Mills. The firm has had to quickly double its staff from 12 to 24 lawyers to handle the plan's 17,000 members.

Ninety per cent of Pre-Paid is phone work, advising members over the phone or intervening on their behalf with a third party.

Ted Mills' family has been in the law business for 115 years. It was selected to represent Pre-Paid's Ontario membership.

"The product is aimed at people who don't have the resources to retain a lawyer on a regular basis whenever they need assistance," Mills explains.

"The services they offer range over various areas of the law, anywhere from someone suing them over a contract or a criminal charge, to a family law matter like divorce, separation or dealing with custody of children. We can give them some preliminary advice about what the issues are, how the procedures work, probably some ideas about cost."

It may be phone law, but to Mills & Mills, this new pool of customers represents over $100,000 a month in new income.

One of those members is Victor Crowl. He's a singer/songwriter. Previously, he'd spend thousands on legal fees negotiating music rights and reviewing contracts. He bought a Pre-Paid membership because he wanted to save money.

Crowl's Pre-Paid lawyer sent off a letter suing for payment. The production company replied in kind. Since Pre-Paid legal only allows one letter per situation, Crowl's lawyer required payment to act further.

Despite the limitations, Crowl was happy with the service. So much so, he decided to sell memberships.

One out of every three members makes the switch to selling Pre-Paid's Plan. Its called multi-level marketing.

"So the next day there was money in my account. And I thought, 'Wow this is great. I made four times $64 in a little over $200 - like on the video. I thought, 'I could sell four memberships a week. I'm laughing!'"

In short order Crowl sold 18 memberships to friends and acquaintances.

Multi-level marketing is like a chain letter. It's based on a pyramid or network sales. Prof. Ken Wong teaches at Queen's University in Kingston, Ontario and runs its MBA program. We asked him to examine Pre-Paid's "message" from a business perspective.

"When I sell to you I'm going to get a commission based upon your purchase from me," Wong explains. "When you sell to someone else I'm also going to get a commission based on your sale to them."

"They need to excite them about the product," says Wong. "Pre-Paid Legal, it's a moral good, you are serving the high ground. Then they need to sell them on the opportunity: by the way you can be moral and also be very wealthy."

Some sales associates who began selling Pre-Paid soon after it was introduced are very happy. Dave Brown says his Pre-Paid group has sold 900 memberships in 9 months. He's now making about $6000 or $7000 a month, part time.

Crowl believed Pre-Paid Legal would be an easy sell and make him money. Instead he lost money because he got caught up buying sales aids like motivational tapes.

"I spent probably three times more than I made, on materials," admits Crowl,

"An organization like this makes money in two ways: selling a service to members, and selling sales aids to the people representing them," Prof. Wong explains.

Crowl's sales network didn't take off like Pre-Paid's promotional materials said it would.

"A lot of friends who were part of this went to college or university. Their friends didn't see a need or thought it was a scam and so they lost their investment," says Crowl. "And I feel badly about that."

Rob MacKenzie of Pre-Paid admits there are lots of scams in pyramid plans. "But there are also companies that have done amazing, amazing things. And we're one of those companies. There's nothing wrong in network marketing; its one of the fastest ways to take a product to the consumer."

Prof. Wong says Pre-Paid targets a certain type of conusumer.

"The more educated they were, probably the less likely they would be to buy into the whole concept in the first instance. So you're really targeting a specific kind of individual who life has treated in a very certain way, and you're now saying you don't have to have that way anymore."

Crowl still believes in Pre-paid Legal as a service, but has learned an expensive lesson about multi-level marketing.

"If I knew then what I know now I would probably still get the membership. I would not put anywhere near the the money in and I would probably left it at that. I would tell my friends about it but not about the selling aspect."