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A California boost for ALSPs?

State bar proposal modifies legal practice restrictions

California ALSPs rules

The California state bar “Task Force on Access Through Innovation of Legal Services” has recently proposed new ethics rules that would modify restrictions on the practice of law, especially affecting alternative legal service providers (ALSP).

The proposed changes would allow:

  • Nonlawyers to provide some legal advice and services, with regulation.
  • Entities that provide law-related services to be made up of lawyers, nonlawyers or a combination, also with regulations.
  • Nonlawyers to hold a financial interest in law firms.

Whether or not this will ripple across other states remains to be seen, though Bloomberg Big Law Business reports that Arizona and Utah also have similar task forces because of concerns over access to legal systems and justice for the underserved. The article also states:

“California’s efforts are one of the first possible steps toward a U.S. legal market that looks more like the U.K. and Australia’s.”

Meanwhile, the California proposals face a series of votes before they could become effective.

If the rule change goes into effect and non-lawyers are allowed to take a financial interest in law firms, how big a change would that be for the legal market? It would be a big rules change but the impact on the legal market likely would be limited. The best evidence for that impact lies in the UK and Australia, both of which made this rule change several years ago. Our read of the commentary over the years from both countries is that the rule change led to a more diverse legal ecosystem but no fundamental changes. 

State of ALSP industry in 2019

The Thomson Reuters Legal Executive Institute early 2019 report Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity created some buzz that law firms have lost and will lose more share to alternative legal service providers (ALSP). And some might speculate that the rule change would be particularly good for alternative legal service providers.

ALSP infographic

Infographic summarizing Thomson Reuters Legal Executive Institute’s report, Alternative Legal Service Providers 2019: Fast Growth, Expanding Use and Increasing Opportunity. Click to enlarge.

 

LAC Group CIO & CKO Ron Friedmann, who worked for an ALSP, and has followed the rise of that category since its inception, explains that big law has been responding to market evolution:

Many firms have thought about alternative providers and have acted. First, at least a half-dozen firms have announced partnerships with alternative providers – most recently in early June when Ashurst announced a partnership with Cognia Law. And, more recently, Greenberg Traurig announced Recurve, which is designed to provide alternative delivery.

Second, many large law firms have imitated aspects of alternative legal service providers (ALSPs). I wrote about this in 2012 and again in a 2018 post. The trend I noted in both continues today: most of the UK top 30 firms operate wholly-owned low cost centers for both business and legal support; some global firms now operate multiple low cost centers; many large US firms hire staff attorneys who offer clients better value for certain work; dozens of large firms use efficiency and quality enhancing tools, for example, machine learning to accelerate contract review in due diligence. 

ALSPs can be friend or foe, problem or opportunity. Prominent coverage by the legal media and blogs reflects that markets and clients have spoken—they want value for their dollars and multiple options for legal delivery. That trend will grow in my view. To date, it appears that ALSPs have gone after work that many large firms don’t pursue. In the future, there may be more head-to-competition. If that does occur, I expect even more law firms will either partner with them or adopt more of the efficiencies the ALSPs pioneered. Under the proposed California rules, doing so would become even easier. 

You can also read Ron’s view of the TR study of ALSP as his blog post, Read Ron’s entire article, The State of Alternative Legal Providers, on his blog.