The Arizona Supreme Court has just passed sweeping reforms to the practice of law, including the elimination of rule 5.4 that prohibited fee splitting and ownership of law firms by non-lawyers. Law firms can now be owned by non-lawyers and register as an “ABS” or alternative business structure. Additionally, LLLPs, or Limited License Legal Practitioners will be eligible to practice law including the ability to file documents, appear in court, and represent individuals in mediations.
Whether this is a good idea or not, is no longer up for debate. On January 1, 2021, change is coming. So, what does this mean for you and your practice? How do you thrive in an environment where the Big 4 accounting firms and big box stores like WalMart will be offering legal services that directly compete with your firm? How can you prepare, adapt, and thrive in a deregulated legal industry? You have time and notice to make sure you have a strong foundation in your firm right now. This will allow you to be more flexible and adapt your client services as new providers enter the market. It may also position you to accept capital injections from outside players looking to invest in law firms. Start with these four fundamental principles:
1. Think very closely about your clients and who you serve? If you haven’t specialized yet, now is the time. The more specific you can get about who you serve and why, the easier it will be to compete in the deregulated world. Lawyers will become surgeons and specialists. Lawyers will not fill the role of the urgent care doctor.
2. What will your practice look like in five years? What have we learned about the practice of law from the pandemic? Will you need office space? How much? How will you interact with your consumers and with the court? Are your technology systems locked in and scalable?
3. Take a look at your financials. Do you have a healthy profit margin? For a firm with 2-5 attorneys, you should have a 15%-20% profit margin. Costs associated with employees, including owner salaries should be no more than 50% of your revenue. You should be spending between 6%-10% on marketing, and less than 6% of your revenue on rent. If you check these numbers and they are close, your model may be solid. If your numbers aren’t close, you probably have some work to do on your law firm’s financial model. You still have time before the capital comes in and starts scooping up firms and clients.
4. Check your technology and your systems. Is every person in your firm using your technology in the same way? Do you have a consistent stream of clients coming in? Are your cases processed in a consistent, proactive manner?
Some more good news for how you can broaden your practice? We have heard from the Maricopa County Superior Court Justices that they are upgrading their software to allow for virtual trials to continue well after the pandemic and that they will move to a system of electronic submission of exhibits. Virtual trials mean that lawyers will be able to represent people across the state without increased costs of travel. It also opens up opportunity to provide physical space suitable for virtual representation. You could theoretically offer your office space for those who needed to have the internet bandwidth and logistical space for a virtual trial.
Non-lawyer ownership is allowed already in London, Australia, and Washington D.C., the business model of law is not radically different there than it is here in Arizona today. The future of law has always been subject to speculation, but now the possibilities are broader. Certified Legal Document Preparers have been licensed in Arizona to provide document preparation for more than 20 years. The existence of CLDPs did not shrink the legal market for lawyers and has created a viable industry for providers and consumers who need legal help, but may not need the expertise or can’t afford the expertise of an attorney. I have owned both a law firm and a certified legal document preparation company simultaneously in Arizona for more than seven years. Consumers have benefited from being able to leverage the services of both companies to maximize their budgets and their success in their family law action. My hope is that the industry grows to serve more clients and lawyers thrive in the specialized field they have chosen.
Do not allow fear to immobilize you. Attorneys can and should thrive amid the changes.