Is this the Biggest Risk for Law Firms?

Three of the largest banks in the world have told their law firms that they expect the price of legal work to fall.

• Morgan Stanley and Citigroup have said publicly that they want new fee arrangements.
• Goldman Sachs has asked its firms to say how much AI is saving them.

Today we cover how this impacts law firms, and how to use this story in your applications and interviews!

What's going on?

As you know, the billable hour is a big deal in the legal industry.

The idea is lawyers (especially the more junior ones) bill by the hour for a lot of hours. That then funds a very large part of equity partner profit, which is why the billable hour has survived every predicted death for forty years.

More hours = more money

But the banks have different ideas...

They think that with AI cutting down fee earner time on big tasks like due diligence, firms should be charging less.

• Citigroup is running competitive tenders in which firms must explain their AI savings as part of the bid, and expects a new operating model within a year.
• Morgan Stanley expects most external work to be tendered by the end of this year and paid through alternative fee arrangements, meaning anything other than straight hourly billing.

Neither wants cheaper lawyers. They will still pay heavily for judgement. but they will not pay premium rates for process.

How does this impact Law Firms?