Changes in Arizona May Be Coming to a State Near You and What This Means for Your Law Practice
Adapt or die. Tech companies disrupting industries is nothing new. But it’s a challenge the legal industry hasn’t had to face, until now. A growing list of state supreme courts are proposing and enacting major regulatory changes. As regulations evolve, the door is opening for tech companies to totally change the game for small to midsize law firms.
Kory Kelly is a tech entrepreneur and founder of Legal Karma. His document drafting automation and client collaboration platform helps smaller law firms adapt and thrive in a new regulatory landscape. He sat down to talk through the new legislation coming out of Arizona, and what it might mean for firms across the country.
Kory tackles the following questions in this blog:
- What Is the Law That Arizona Passed?
- What Was the Motivation Behind the Law?
- What Does This Law Mean for Law Firms?
- How Does This Law Help Companies?
- How Can a Small Law Firm Stay Profitable Once This Legislation Goes into Effect?
- Do I Have to Change Everything at Once? or Can I Take a Stepped Approach?
What Is the Law That Arizona Passed?
Up until January 1st of this year (2021), all 50 states required you to be a licensed attorney to own a law firm. For the first time in US history, this has changed.
The state of Arizona passed a law saying that non-attorneys can now own law firms and that paralegals, who are now called paraprofessionals, can represent clients in court.
This means two major changes are coming:
- The number of people able to represent a matter in court is going to rise dramatically.
- Tech companies have an opportunity to disrupt outdated business models.
What Was the Motivation Behind the Law?
Access to counsel. A lot of people can't afford access to legal services. Sometimes lawyers tend to have high billable hours for services that aren't that valuable, which creates a barrier to entry. When people can’t afford an attorney, they may try to represent themselves pro se in court. Unfortunately, that creates a huge problem for judges and the court system. When you have a large percentage of cases being represented by someone with no understanding of legal procedure, it slows the process of resolving a matter and creates enormous backlogs.
As judges become increasingly overwhelmed, they end up in a no-win situation. Either the judge provides advice on someone’s matter, which may be illegal, or they prolong the case and add to the backlog.
Eventually, you end up with judges advising people from the bench. Even though it’s illegal for them to dispense legal advice – they don’t feel they have a choice.
Arizona is the first state to try and change how the industry operates and solve the problem of access to counsel. Arizona needed to find a way to lower the cost of legal services to the public. By opening up who can act as legal representation to a wider (though still carefully managed) list of legal professionals, supply and demand rules should help make getting legal representation on basic matters more affordable.
What Does This Law Mean for Law Firms?
If you’re a large firm, not too much. Low-volume high-value areas of practice won’t be affected very much at all by the new legislation. However, smaller, 1-20 person firms that focus on high-volume areas of practice need to be ready to adapt their business model. Prices are going to fall and competition for customer acquisition is going to rise. If you’re not ready for these changes, you’re going to get left behind as big companies productize legal services.
How Does This Law Help Companies?
Under the new rules, corporations will be able to offer legal services. Innovative companies are already considering setting up their own law firms in Arizona. These companies will likely do things like turn the affordable document drafting services they already offer into a powerful client acquisition tool for their law firm. When an issue does arise, do you think people will choose the traditional lawyer who charges thousands of dollars for a simple document? Or someone who does the document drafting for free with a nominal charge for legal review? A lot of the legal profession is about relationships and, at least in Arizona, it won’t take long for tech companies to have a major head start in building these relationships.
This change is coming to everyone. Arizona is just the first. California is looking at similar legislation, and so are other states like Illinois, New York, and Florida. Business owners who understand productization and customer acquisition are going to be able to undercut the market. We’ve already seen big-box stores incorporate pharmacists, optometrists, and hearing aid specialists into their business model. There’s little reason to think legal services won’t be added to the list. When that happens, small firms that didn’t prepare will struggle to survive.
How Can a Small Law Firm Stay Profitable Once This Legislation Goes into Effect?
Get on board with document drafting automation software. The main thing that will set companies apart from legacy firms is how they use document drafting. Entrepreneurial businesses will immediately see the value in using lower value documents as a tool to bring customers in the door.
If you're still opening up Microsoft Word or WordPerfect and editing the highlighted text because that's how you’ve always worked, then you’re in trouble. You need to learn how to productize your services so you can start offering them competitively. Unfortunately, things like operating agreements aren’t worth $1k. These documents are only worth your review, which should be a nominal charge. You need an automated process to quickly draft standard forms and documents.
The good news is there are solutions out there. Legal Karma is one, but there are a variety of platforms that can help firms make the shift in business model.
Do I Have to Change Everything at Once? or Can I Take a Stepped Approach?
It’s probably not a good idea to bet your whole business all at once on a new idea. Depending on what kind of firm you are, I would pick your 5-10 most common documents and use them as a pilot program.
Use document drafting automation software to turn these documents into powerful low-cost products. Empower one or two of your people to use the documents as a first-time offer to fuel your firms’ growth. The terms need to be clear: the customer is only getting a document that has been legally reviewed. Your firm is not offering billable work hours for free.
Productizing some of your most common documents allows you to give value rather than take value. You’re going to find that starting client relationships in this way will turn into more business.
Arizona’s new legislation is just the beginning. Disruptive companies are coming for the industry. Firms that don’t adapt to this disruption are going to lose.
The good news is you have time. Even if you’re in Arizona you can set up document drafting automation and productize your services. You can set yourself up for a win and compete with the tech companies. Even if your state never passes this kind of legislation, you will have made your firm stronger and more competitive.
Daniels-Head Insurance Agency (DHIA) seeks thoughts and insights from a variety of individuals and organizations in the industry. The guest content on this blog represents the individual opinion of the author and not that of DHIA. Nor is it the opinion of DHIA’s underwriters and business partners. Neither DHIA nor DHIA’s business partners are recommending, endorsing, or sponsoring any companies, or third parties mentioned in this blog.