Arizona, Non-Lawyer Ownership, and What It Means for Law

March 17, 2021

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To many, the news that Arizona is expanding ownership of law firms to non-lawyers is a welcome sign that the industry will finally evolve and serve the needs of the less affluent. One of the driving forces behind the decision was to spur innovation and to address the access to justice gap that leaves so many people without the legal help they need. 

But for us lawyers, the natural concern is fear of our field opening up to outside competition. (And speaking of competition: don't overlook the other announced reform that gets lost in the headlines — that paraprofessionals will be allowed to practice law in Arizona, including representing clients in court.)

So is this a much-needed revolution that will solve the access to justice gap? Have lawyers missed their chance to innovate, leaving the profession to face new, disruptive competition? And more narrowly, what impact will these changes have on law firms in Arizona, and if the trend continues, in other states?

Why Lawyers Rarely Innovate

It costs a lot money to innovate. Developing software, taking risks with business models, and charting an undiscovered path are all things that don’t come cheaply. On top of that, most tech tools and marketing tactics are incomprehensible gibberish to lawyers. Unless they have very deep pockets, high risk tolerance, and the patience to weed through crowds of jargon-slinging tech and marketing salespeople that promise to revolutionize their law practices overnight, most lawyers are out of their depth and won’t succeed if they try to innovate.

Which lawyers have money? Typically, it’s the ones who have been practicing for a while. And if you have been practicing long enough to make money, how motivated are you going to be to upheave the industry that has filled your coffers? Why break something that is working for you?

This is not to say there are not legal innovators out there. There are plenty of us. There are brilliant legal open source movements, lawyers that created divorce startups, bankruptcy startups, and more. There are hundreds or even thousands of lawyers who are experimenting with business models that go outside the billable hour.

But the pace of change is absurdly slow. Many states still won’t even allow you to file your case electronically. Overnight, courts across the country had to figure out what Zoom was and many simply dusted off their fax machines rather than truly innovate.

Rally's ebook for lawyers who want to offer subscription legal services at their firm

Non-Lawyer Ownership Could Drive Innovation

It’s all about capital and talent, right?

Startup companies attract talent by offering equity. Or, they leverage their future by attracting investment from angel investors. Neither of these has been an option for law firms that want to try an innovative business model. Now, at least in Arizona, both of these avenues should be open.

Enter the hybrid tech startup-law firm. A law firm that is built like a tech company would see the massive access to justice gap as a market opportunity. It would use technology, automation, and selective outsourcing to scale its offerings at narrow profit margins, or even at losses as many startups do. If you think law firms operating outside of the billable hour is revolutionary, wait until you see what a tech company masquerading as a law firm can do.

This is, in large part, the motivation of the forces at work behind the rule change in Arizona. In making the announcement, Arizona Supreme Court Chief Justice Robert Brutinel said:

“The Court’s goal is to improve access to justice and to encourage innovation in the delivery of legal services. The work of the task force adopted by the Court will make it possible for more people to access affordable legal services and for more individuals and families to get legal advice and help. These new rules will promote business innovation in providing legal services at affordable prices.”

Innovation. Affordable prices. Access to justice. All buzzwords that the legal tech community loves, but the wider industry has yet to achieve. And so long as the equity partners in law firms are good old-fashioned lawyers, there’s a very good argument they never will.

Yet Another State Allows Paraprofessionals to Act as Legal Practitioners

California did it. Washington did it and then changed their minds. Utah did it, though only in a two-year “sandbox” environment that has so much red tape that it’d be a shock if anyone applies to their program. And now Arizona did it.

Lawyers are simply too expensive and inaccessible for large portions of the population, so many states are now allowing non-lawyers, otherwise known as paraprofessionals or the “nurse practitioners” of the law, to eat away at our potential customer base. In many of the states that have adopted these reforms so far, the domain of these paraprofessionals was limited to document preparation and basic legal advice. Arizona will even allow these professionals to represent clients in court—a step further towards blurring the line between document preparers, paralegals, and lawyers.

Does this mean significantly less business for the lawyers? It’s really hard to tell. In the states that have launched these type of experiments, the impact on lawyers has been seemingly minimal. These paraprofessionals have simply served a chunk of the low-end market that was probably already served by paralegals. Or by people doing DIY law by searching for answers to their problems on the Internet.

Is It Necessary to Close the Access to Justice Gap?

It is painfully expensive to be a lawyer. Law school tuition, bar dues, expensive software, and every business and consultant out there from marketing to accounting assumes that you have deep pockets and wants top dollar rates because you are a lawyer.

It does not seem likely that we are going to drive down the cost of being a lawyer anytime soon, unless state bars want to trim their budgets and fees and law schools suddenly slash a year off or put law degrees on clearance sales. At the same time, law school does not prepare you for the practice of law—when you get out, most lawyers go to work for another lawyer and learn how it has always been done. By the time they are comfortable with the actual practice of law, the habits of the past are ingrained and the costs of the profession keep them from lowering their hourly rates to serve the unserved.

It is not an unrealistic hope that outside funding for law firms might drive these firms to try new business models, new technology, or allow them to bring in non-lawyer staff that can push innovation and productivity to new levels—hopefully driving down the cost of legal services as a result.

The Impact on Large Firms

The big fear amongst news stories, the committees that considered the rule change, and social media postings is that the big four accounting and consulting firms will start snapping up law firms or simply hire lawyers to compete with them. Because of their size, they could feasibly compete with the largest of large firms. But remember, most of these firms are multi-jurisdictional. While it is certainly possible that the big accounting and consulting firms could bring on lawyers to provide services just in Arizona, it is not likely that they would snap up or merge with any of the big law firms unless similar reforms are passed throughout the United States.

And besides, though there is good money in law, there is a lot of risk to diversifying beyond your core competencies in order to enter into a risky profession. Until these reforms have taken hold and lasted a while, and perhaps spread to other states, it is unlikely that these large accounting and consultancy firms will want to take on such risks.

The Impact on Small Firms

Small firms and solo shops would be the ones looking over their shoulders. Technology and innovation tend to drive down the cost of services in whatever industries they enter, often turning the services themselves into commodities. Mom and pop shops that previously occupied the field get pushed out in favour of the “Uber of law.”

For a solo charging $300 per hour, still operating on the traditional legal model, with little in the way of innovation or novel solutions to resolving clients' legal issues, he should beware startups like Upsolve and HelloDivorce that are already taking away business from solos and small firms.

And don’t forget about those paraprofessional lawyer practitioners. They are coming for you too.

What About Multi-Jurisdictional Practices?

One of the big problems for law firms or tech companies wanting to take advantage of this new rule is that the legal profession is regulated at the state level. Despite Arizona’s push towards opening up the profession to non-lawyers, unless a tech company or one of these new hybrid business-law entities with non-lawyer owners wants to practice solely within the boundaries of Arizona, this rule change does nothing for them outside of the state. What’s legal in Arizona is still the unauthorized practice of law anywhere else.

That’s not to say this won’t open up the gates to smaller local startups, such as a HelloDivorce for Arizona, but then again, it did not take rule changes in California or Colorado for HelloDivorce to enter the market there.

Will This Change Last? Will it Inspire Other States to Change?

Reforms are fun, so long as they last. One only has to look to the licensed legal technician program in Washington from only a few years ago to see an example of a reform that was supposed to close the access to justice and revolutionize our noble profession. What happened next? The state shuttered the program after a few years due to a lack of interest from applicants and the high cost of running the program.

Tech companies, consulting companies, investors and businesses all have one thing in common: they are looking for ways to scale. Small service-based businesses are not the type of hockey stick exponential growth that these investors look for. Can they get that sort of scale in Arizona alone? And if they don’t find a large enough market there, will the lack of interest kill the program in Arizona like it killed Washington’s paraprofessional program?

More Marketing Mega Firms

Think Morgan and Morgan is a big deal? They really are, and it is in large part because they do marketing better than pretty much any other personal injury law firm in the country. They have an entire marketing office in New York City.

Cellino and Barnes? This firm’s secret sauce was, again, marketing. 

What about that dad’s divorce firm? Cordell and Cordell experienced exponential growth on the strength of their marketing campaign that reached out to men who felt like the family law court system was stacked against them.

All of these firms were powered by marketing. And marketing is expensive. If you have ever talked to a lawyer marketing agency, you know that they promise the moon and charge for it. But what if a firm could pair up with a marketing agency? Make the marketing agency put some skin in the game and see how motivated they are to turn you into the next personal injury powerhouse or mass torts mega firm.

Which law firms need to keep an eye out for these marketing-law firm hybrid organizations? You probably won't see too many marketing-law firm hybrid organizations taking on BigLaw—the high end of the market tends to be relationship-based. On the other hand, small firms and lower-end clients are the bulk of the legal market and tend to have more transactional interactions with firms. 

Rally's marketing hacks for lawyers e-book

Innovation Doesn’t Require Rule Changes or Outside Investment

The biggest secret in the legal industry is that, in the last decade, so many tools have been released to allow us to innovate without learning code or otherwise stretching our minds far beyond their capabilities.  

For firms that want to try a new business model, such as a menu of fixed fee services, and who wish to deliver written work product at scale, the rise of modern document automation platforms, such as Rally, can empower firms to design their workflows into software that astronomically shrinks the time it takes to help their clients. Instead of hiring a HotDocs programmer (or a team of programmers), any lawyer that is capable of using a web browser and a word processor can build their app, the way they want it, and sell it through their website. 

For a billable hour firm, that might not sound like such a great plan, but for a firm thinking like a tech company: scalability and capturing the latent legal services market that cannot afford traditional lawyers is a brilliant business model. And since these tools are no code, even a tech Luddite lawyer can figure them out.

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