Serving the “Middle Market” by Allowing Non-Lawyer Funding & Ownership

Putting cheap, mediocre forms online is not “disrupting” the legal market. Instead, it serves the same price-conscious, careless or uninformed people that have always bought legal forms from office supply stores and will-drafting software from big box electronics retailers. There is definitely growth, but only because it is a lot easier to buy forms online than it is to get off the couch and drive to the store.

That is my opinion. As far as I know, there is no study comparing the paper forms and DIY legal software market to the online forms market.

I don’t see anything to indicate that there is some fundamental shift away from lawyers to online legal forms. Instead, what I and other lawyers see is a huge group of people who need legal help, can’t afford normal attorney fees, but aren’t willing to settle for mediocre forms.

Supply & demand doesn’t work out to affordable legal services

In any other market, the abundant supply of a thing — lawyers, in this case — would drive down prices. That doesn’t seem to be happening in the legal market, and it’s not hard to see why. As expensive as lawyers’ fees seem, remember that the vast majority of lawyers take home $40–65,000 before taxes. These lawyers presumably bill normal rates. They also probably have lots of debt to pay off, which makes a $65,000 paycheck disappear pretty quickly.

The traditional law practice, then, doesn’t translate all that well into affordable legal services. Fees can only come down so far before the lawyer can’t turn a profit. By “affordable,” I mean that most people don’t have a couple thousand dollars lying around to blow on legal fees, at least not unless it’s an emergency. A typical rate (around $150–250 per hour, I’m guessing) just isn’t going to seem affordable. This is the vastly under-served “middle market.”

To me, that looks like a huge opportunity. There has to be a way to bring down the cost of legal services without going broke or sacrificing all quality, so that ordinary people can afford the help they need.

Virtual law offices and online legal forms aren’t the solution

Online legal forms aren’t the answer. Companies that deliver online forms do so by not practicing law, if they can get away with it. Otherwise, they would have to assume liability for their advice and the quality of their forms, which would kill their profitability pretty quickly.

I don’t think virtual law offices are the answer, either. Not the whole answer, anyway. For one, merely cutting overhead isn’t enough to create lower fees. For another, dropping the cost of legal services while preserving the quality that only comes with having an actual lawyer handling a legal matter will require economies of scale. You need to turn a lot of small profit margins into one big one to make money in the middle market.

A new kind of law firm — enabled by non-lawyer investment

What this middle market needs is a new kind of law firm. Firms that serve the middle market will have to be built more like businesses than today’s firms. Lawyers will have to get comfortable with jobs that aren’t as glamorous, and look more like working for a typical large corporation instead of the law firm of today. That doesn’t mean mindless drudgery; it could (should) mean reasonable pay for a 40-hour work week instead of today’s demanding firm jobs or overwhelming solo practices.

The demand for allowing non-lawyer owners — thereby opening up law firms to outside investors — will probably be the linchpin. It’s going to take capital to start a firm that can serve the middle market on a large scale.

Would this be a good thing? If firms are built like corporations instead of law firms, there will have to be some limits in order to prevent shareholders’ profit motives from overruling the lawyers’ professional obligations. But I’m confident these risks can be mitigated. For example, limiting non-lawyer ownership to a minority interest would make it less likely that non-lawyer shareholder could force the firm to toss professional obligations out the window in pursuit of profits.

Assuming the risks can be mitigated, opening up firms to outside investors has the potential to drastically expand access to legal services without dragging the entire profession down to the level of online legal forms. It may be the solution to the problem of delivering quality legal services — not forms — at rates the middle market can bear.

(photo: http://www.flickr.com/photos/maclat/6467605919/)

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  • http://adamlillylaw.com/ Adam Lilly

    1) The link you posted to salary data is for starting rates of each class, not continuing (going by the copyright dates). I can’t believe those numbers hold for the average lawyer (who’s probably been in practice closer to 15 years). If I could earn the same salary as a teacher, then the investment aspect of my JD is not a good deal.

    2) I don’t like the idea of making law firms even more corporate. I understand the necessity of a profession having a business side, but I think this tilts the other way to being a business with a professional aspect. I think it undermines what we do, and think that the introduction of people with no professional interest whatsoever would be catastrophic the already dicey balance of professional ethics and profits. I think the medical field demonstrates how this can fail you.

    3) I guess I just don’t see what non-lawyers have to bring to the table that couldn’t be equally satisfied by simply having a large law firm. The benefit of a volume practice seems to be in reducing per capita costs of things like marketing (one billboard serving 400 instead of 4), but that would be available to any large firm who desired to attempt such a practice. And, if it really would be profitable, I don’t see why they would be more reluctant to try the venture than anyone else (especially considering that for some practice areas, these exist). I think the issue is that – as you point out – supply and demand aren’t well linked in law. But I don’t see how this resolves that issue.

  • Guest

    Hyatt Legal Services did this 20 years ago:
    http://www.youtube.com/watch?v=EPYRsiIgReI

    It didn’t work.
    Hyatt Legal Services was owned by a lawyer. Your plan entails non-lawyer ownership, but this changes nothing. There is no need for capital investment. Practicing law only requires a desk, phone and computer. The exception is contingency litigation. Hedge funds already invest in contingency suits, but you are talking about something different.

    The only value of a “legal services corporation” is marketing to unsophisticated consumers. But only shitty lawyers would work there, so in time reality would override any manufactured reputation this law practice corporation paid for.

    This has been tried many times before.

    • http://lawyerist.com/author/samglover/ Sam Glover

      The fact that Hyatt tried and failed in a very different economic and technological environment doesn’t feel persuasive.

      • https://plus.google.com/117235644077949816393/about Gyi Tsakalakis

        But the Abraham Lincoln commercial certainly was…

      • http://www.shatterbox.biz/ Jay Pinkert

        Yes, conditions are different, but you didn’t actually explain how this new model of non-lawyer investment you envision would drive down fees/rates. Through even lower lawyer salaries in exchange for lower stress and better hours?

  • http://lawyerist.com/author/joshcamson/ Josh Camson

    It’s slightly different, but I think the UK and a few other countries allow nonlawyers to own part of a law firm. NY just did an ethics opinion saying that lawyers can’t enter into a partnership with a firm like that.

    Would you be suggesting that firms get capital in the beginning to cover their overhead/costs because it will simply take a while to turn a profit doing “affordable” work?

    • http://lawyerist.com/author/samglover/ Sam Glover

      That’s the idea. Capital is the most common way to create a large-scale business. In the tech startup world, there’s also a lot of bootstrapping, but things like social media have the potential to grow explosively even if bootstrapping. Law firms really don’t.

    • Guest

      Except for contingency litigation, what costs need to be covered?
      A computer is $1,500. Unlimited phone is $100 a month. A virtual office is $50 per month. You can follow the Lawyerist’s advice on how to set up a Thesis website for free. There are cheap alternatives to Lexis and Westlaw.

      So what are the cost barriers to entry in serving the middle market which require capital investment from a corporation?

      As for contingency suits: Investment funds already purchase shares in patent holding companies to finance licensing/litigation. Funds cannot invest in individual personal injury suits because of fee sharing prohibitions. Besides that, I don’t see what corporations can contribute to the small law market.

      • http://lawyerist.com/author/samglover/ Sam Glover

        The main inefficiency you are forgetting is the time it takes to manage, market, and administer a law practice. In other words, stuff besides lawyering. I think this lost time can be drastically leveraged at scale.

        • http://thegirlsguidetolawschool.com/ Alison Monahan

          Well beyond just economies of scale in managing, marketing, etc. I think there’s a huge opportunity to really rethink the way legal services are provided, with a strong dose of technological innovation — that’s employed to make the human capital (the lawyers) better at what they do, and a lot more efficient.

          You can think of it as “forms plus” if you want, but the reality is that the average mid-market consumer of legal services probably needs some pretty standardized advice and documents, with sufficient human oversight to anticipate and respond to the 10-20% of situations where an off-the-shelf solution isn’t adequate. It’s like programming — 80% of any problem is easy, and you spend your time on the 20% that’s tough. Having sufficient capital to develop systems for the 80% strikes me as a huge potential win, for consumers, and for the lawyers who recognize what’s coming and get on board.

          • Guest

            I think I now understand what you guys are proposing.
            It might work. A highly standardized system of forms plus a lawyer on the phone who can give advice on the phone and with authority to make minor additions to the forms; and spot issues and refer to a specialist if needed.

            This is how real estate and small PI work currently. There is a standardized secretary run system. The secretary gathers title documents and medical documents, communicates with the client, etc. Then the actual lawyer does a few minutes of work doing the closing or telephoning the insurance adjustor for an offer (which the secretary could easily do but the Bar would consider it unlawful practice).

            What underserved practice areas would your system apply to?
            I can’t see it working for big criminal, high value divorce or high value torts. Real estate and small PI already work this way, but with secretaries instead of with lawyers.

            • http://lawyerist.com/author/samglover/ Sam Glover

              I’m not trying to dictate the business model, here. If we open up law practice to investment, it will open up law practice to innovation, too, which is the whole point.

  • http://lawofficesofcarolynelefant.com/ Carolyn Elefant

    I’d like to buy into the notion that non-lawyer ownership will expand access to law. But from what I’ve seen so far, I am very nervous. Look at the “save your home” foreclosure defense places that cropped up and hired lawyers as stand-ins in court. Look at the banks that closed all of those home loans that people couldn’t afford to take out – many of those banks offered lawyers but they weren’t advising clients on the problems with those deals. If someone, somewhere can give me an example of a non-lawyer owned model that has actually helped expand meaningful access, then I’m all for it. But to date, the best I can come up with is government-funded public defenders’ offices (and people are mixed on their quality; I tend to think they are quite good) and legal aid.
    I personally think that we are looking in the wrong direction. We should be able to use technology to make bespoke services more affordable, not to squeeze more money out of cookie cutter service. I am not entirely sure of the solution just yet.

    • http://www.shatterbox.biz/ Jay Pinkert

      I don’t think access to justice and public defenders are at issue in this post. It’s whether individuals who can afford a lawyer will actually pay what lawyers have to charge for basic services like wills and LLC registrations just to cover even minimal operating expenses, pay down education debt and draw a meager salary.

      Technology adoption by solos and small firms won’t generate enough savings to enable them to reduce their fees by 50%-75%, which is what will be required to bring cost-conscious potential clients back. Until the issue of law school debt is addressed, there will be no significant progress on affordability even for people with the ability to pay.

  • http://lawyerist.com/author/samglover/ Sam Glover

    Well, it’s not going to happen this year, at least. The ABA decided not to take up the issue:

    http://www.abajournal.com/news/article/ethics_20_20_commission_suspends_campaign_to_draft_a_proposal_on_nonlawyer/