Rule 5.4 and the Future of Your Law Firm
4 minutes to read
Developing Story: They’re Coming for Your Law Firm
Rule 5.4 – “Legal services must be provided by a law firm that is owned, managed, and financed exclusively by lawyers.”
But that’s changing… Here’s the timeline so far:
2001 — New South Wales, Australia lifts restrictions on non-lawyer firm ownership and investment.
2007 — The UK passes the Legal Services ACT (LSA), allowing for the creation of Alternative Business Structures. This structure allows legal services to be provided alongside other professional services, and owners don’t need legal training.
August 2020 — Arizona eliminates Rule 5.4, allowing for non-lawyer investment and fee-sharing.
Also August 2020 — Utah creates a “regulatory sandbox” pilot program for firms to test alternative business structures.
Florida also recently announced plans to develop their own “sandbox” modeled after Utah’s regulatory changes.
The trend is clear: Non-lawyer firm ownership is coming to the United States. And it may happen sooner than you think.
Why States Are Moving Away From Rule 5.4
The US is behind, ranking 109 out of 128 countries in access to legal services. The inability to access capital and embrace innovation due to the limitations imposed by Rule 5.4 have severely stunted the advancement of the legal industry.
This is bad for the small business owners that face litigation but can’t afford representation or counsel. It’s bad for ordinary citizens that have no choice but to represent themselves at trial. It’s bad for the family who can’t fight for their child who was injured in a car accident.
And it’s bad for you because it limits your ability to create a positive impact on your community.
The removal of Rule 5.4 gives law firms access to critical funding and the opportunity to partner and create new kinds of businesses that better serve the legal needs of modern America — and that puts your law firm at risk.
The future of your firm is the business of your law firm. These changes create an environment where the most successful attorneys are the ones who build the most successful legal services businesses, not just the ones who can win in the courtroom.
Who’s Taking Over?
Countries that have removed regulations on non-lawyer firm ownership and outside partnerships have experienced an infusion of capital from various investors that is changing the legal landscape.
Forward-thinking attorneys have started offering their services among other necessary financial services like accounting. As a result, legal representation has become much more accessible for the average citizen.
Document preparation companies like LegalZoom and Rocket Lawyer found a way into the legal field and have already established themselves as Alternative Business Structures (ABS) in the US. Their next move? Acquisitions that further their service offerings. And they’ll only look to take on the best legal businesses.
Looking at these examples, major U.S. financial institutions like EY and Deloitte are keeping a close eye on changing regulations and are poised to enter the market if (or more likely when) the opportunity arises.
Private equity firms are also showing interest in providing the capital necessary to create the kind of innovation the legal industry needs.
Big players and big checks will be looking for the stand-out firms and the true game changers to bring along into the next generation of legal service providers. Are you one of them?
What’s Next For Your Firm?
The pattern is clear. Changes to Rule 5.4 are coming. Sure, there will be holdouts or those that fight it — and they’ll get left behind.
Outside investors will soon bring the same rapid change that’s hit every other industry to the legal field. It will happen fast. There won’t be time to prepare when it happens.
The key to getting ahead is taking the right action now.
It’s time to start running your law firm like the business it is and presenting yourself as a leader in the legal industry.
And that’s at every level in your firm — from hiring to case management to creating an unstoppable culture.
You need to fine-tune every detail or you risk getting swept away.
The Game Changers Summit will provide you with the resources and network that will prepare you to not only weather changes in the industry, but to define the change and rise to the top of the new legal landscape.