Question:
I am the founding partner and sole owner in our firm located in Miami, Florida. We have a total of four lawyers, four paralegals, and four support staff in our firm. We are an estate planning firm that handles estate planning, estate administration, and elder law matters for our clients. Estate planning matters are charged a flat fee and estate administration are billed based on time spent on the matter. At a recent attorney meeting the subject of AI and the impact upon estate planning came up and our discussion led us to the question as to the impact that AI will have upon future estate planning work for our practice. Will estate planning dry up with clients using AI tools and doing their own estate planning documents? Your comments and thoughts are most welcomed.
Response:
I believe that AI will have an impact upon estate planning, especially for wills and trusts in that it will change how wills and trusts are drafted. You will be forced to use AI assisted drafting tools if you are not using them already and the use of these tools will substantially reduce drafting time. More firms will be forced to move from hourly billing to flat fee billing for estate planning work. As efficiency improves and firms that are presently charging flat fees will see competitors charging less, reducing average revenue per matter and required a larger volume of client business to remain competitive. AI will impact how:
In order to remain competitive and profitable in the next three to five years estate planning law firms are going to have to:
Your goal should be to graduate from lawyer technician to a trusted advisor to your clients. A trusted advisor is a lawyer or other professional service provider whom a client relies on not merely for knowledge or technical expertise, but for sound judgment, honest counsel, and guidance in making important decisions. Trust is earned over time through competence, integrity, discretion, consistency, and a genuine commitment to the client’s interests.
As a trusted advisor estate planning attorney your primary role should be to understand the family’s complete circumstances, identify the questions the client has not considered, and develop a coordinated plan that reflects the client’s wishes. Your role should not be to primarily prepare estate planning documents. Your role should be to help clients make decisions about family, responsibility, control, and legacy. This is the difference between a technician whose work will be replaced by AI and a trusted advisor whose work will be focused on client relationships.
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John W. Olmstead, MBA, Ph.D., CMC
Question:
Our firm is a small general practice firm with three partners and two associates in Southern Illinois. We have been deploying AI for the past year primarily in our litigation cases and have experienced time savings and efficiencies from using AI tools. Since our litigation cases were all contingency fee cases AI did increase our profitability on these cases – we are not sure about our time bill matters. As managing partner in the firm, I am wondering what the impact of AI is going to have on our business and management strategy going forward. What are your thoughts?
Response:
Artificial intelligence is changing the way legal services are delivered. From legal research and document review to drafting, client communication, and administrative support, AI tools are creating opportunities for law firms to improve efficiency and rethink how work gets done.
Adopting AI is only part of the equation. The more important question is whether law firm management is keeping pace with these changes. Technology alone will not fix inefficient processes, unclear responsibilities, weak financial controls, or a lack of strategic direction. Implementing AI into a poorly managed firm can amplify existing problems.
AI Implementation as a Management Issue
You should approach AI implementation primarily as a management issue and you should identify and determine management issues that need to be resolved. For example:
After you have identified these issues, you can determine whether AI is an appropriate solution and where to prioritize implementation.
AI should be implemented to improve the way the firm operates, serves clients, and improves profitability by by reducing time spent on certain routine tasks, helping staff work more efficiently, and allowing attorneys to devote more attention to higher-value legal work and client relationships.
Impact Upon Profitability
You need to realize that increased efficiency does not automatically translate into increased profit if you do not consider client billing methods used in your firm. If AI reduces the time required to complete tasks performed for clients and the firm continues to bill based on time spent and the billable hour, the result may be reduced revenues and reduced profitability. You may need to consider a different approach to client billing.
You must examine how the firm charges for its services, prices matters, allocates work, and measures attorney productivity. Under alternative fee arrangements, efficiency gains may improve margins directly. In hourly billing practices, firms may need to reconsider staffing, pricing, and how released capacity is used to serve clients and develop new business.
AI Policy
Uncoordinated adoption can lead to inconsistent practices, duplicated spending, security concerns, and uncertainty about which tools are approved for client work. You should establish AI policies in writing addressing:
Training
Attorneys and staff need to understand both the capabilities and limitations of the tools they use. AI-generated content can contain errors, unsupported statements, or fabricated legal authorities. Professional judgment and independent verification remain essential. Your goal should encourage responsible experimentation within a framework that protects clients and the firm.
Next Steps
I suggest that you begin with a focus on your firm’s management strategy rather than AI technology and what others are doing. Start with the following steps:
These steps should be part of a broader management plan that includes budgeting, staffing, pricing, business development, and strategic planning. AI should support the firm’s business objectives rather than become a separate initiative disconnected from them.
Your objective should not be to make a law firm more technologically sophisticated simply for the sake of innovation. The objective is to build a better-managed firm—one that delivers quality legal services, serves clients effectively, develops its people, and achieves sustainable financial performance.
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John W. Olmstead, MBA, Ph.D., CMC
Question:
I am the managing partner of a sixteen-lawyer insurance-defense firm in Orlando, Florida. There are four equity partners in the firm, twelve associates, and eight paralegals plus administrative personnel. We manage the defense for various insurance company’s insured primary in auto accidents, premises liability, and slip and falls cases. Our work comes primarily from four insurance companies. All of our clients are billed by the hour at low hourly rates with restrictions on the amount of time that we can spend on certain matters. We have resisted using any form of AI and we are continuing to staff our client cases as we have always done. Our clients are asking us what and how we are implementing AI and to reduce associate and paralegal time spend on their cases. I realize that we must change our ways and begin to implement some level of AI in our practice. However, I have concerns as to how we survive in a practice where partner livelihood in a low bill rate practice has been based on high billable hours and the profit margin off of associates and paralegals. What do you see as the impact that AI is having or going to have on insurance-defense law firms?
Response:
AI is likely to have a major impact on insurance-defense law firms. Associates may not be totally replaced as firms will be able to handle more cases with fewer billable hours. Insurance companies will expect faster turnaround of their cases at lower costs. Implementation of AI by insurance company outside law firms will be a requirement.
Insurance-defense law firms will see the following changes:
When it is all said and done a major question will be:
With reduced billable hours insurance-defense firms will have to either reduce associate/paralegal headcount or increase their case volumes. Business development will become more critical as opposed to simply relying on a handful of insurance company clients.
While AI is having and will continue to have a transformational impact upon society as well as law firms, we have seen this before with other forms of technology and law firms have successfully adapted and I believe that we will once again.
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John W. Olmstead, MBA, Ph.D., CMC
Question:
I am the managing partner of a ten lawyer firm in Kansas City, Missouri. There are five partners and five associates in the firm. We are an insurance defense firm and our clients are a handful of insurance companies. Our cases are primarily slip and fall, premises liability, and auto accident cases. I have been the managing partner for two years and frankly I am getting burned out on the position and none of the other partners want the job. I am working 60-70 hours a week and am spending so much time on administrative matters that I don’t have time to practice law. I would be interested in what is keeping managing partners in other insurance defense law firms awake at night and how they are dealing with the challenges.
Response:
Managing partners in small insurance defense firms are telling me that the following top five challenges and concerns are what are keeping them up at night:
1.Finding and Retaining Experienced Lawyers and Staff
This is the biggest issue facing many firms. Gone are the days when you could place an ad and have a position filled within 30 days. I have client law firms that it has taken over a year to find and hire experienced (3-5 years) lawyers. Billable hour requirements of 1800 – 2000 hours are conflicting with work life balance goals of many young lawyers. Retention is also a issue. Losing a strong partner or associate can mean lost revenue, disrupted client relationships, and months of recruiting and training.
You must plan on a longer recruiting timeline and use all avenues available to you. For example:
You must offer competitive benefits, work life balance and flexibility. Some form of remote work has become a major requirement and failure to offer schedule flexibility and remote work has resulted in many law firms losing candidates to other law firms.
2. Client Concentration
Insurance defense firms often have too few clients and many insurance defense firms are held hostage by these clients. I have some law firm clients that only have one insurance company client and if that client were to start using another law firm the law firm would be in dire straights. The client controls the amount of case assignments that the firm receives, the bill rate, and the amount of hours that can be charged for various tasks. The firm is so busy working on client files that no one has time to market and try to get additional clients. Partners often know they need a more predictable pipeline but don’t have time—or a repeatable system—for generating new clients. It sounds like your firm depends heavily on a handful of clients. Losing one major insurance company client can materially change the firm’s economics.
Insurance defense firms must find ways to invest the time and other resources to add additional clients to their client roster resulting in less dependence on one or a few clients and move their practice up market with improved hourly rates in areas such as insurance coverage, corporate representation, and self insured clients. Such diversification has made many firms less dependent on 2000 plus billable hours and more attractive you new lawyers. Many insurance defense firms have effectively done this.
3. Cash Flow and Collections
It has often been said that businesses are killed by inadequate cash flow. A firm maybe profitable on the profit and loss statement but is cash always tight?” Slow-paying clients, write-offs, uneven matter flow, and payroll/overhead create constant pressure.
4. Technology and AI
Law firms are trying to figure out where AI can genuinely improve operations and lower operational overhead without creating confidentiality, accuracy, ethics, cybersecurity, or malpractice risks. What tools should the firm be using? Costs? Time to implement? Fear of AI reducing the need for lawyers?
You need to attend all the CLE seminars, webinars, etc. that you can and get up to date on AI. This is moving very fast.
5. Succession Planning
What happens when founding partners want to slow down and retire?” How does the firm fund buyouts? Smaller firms frequently have fewer obvious successors. Do the younger attorneys in the firm want to have equity and own a law firm and will they be willing to step forward?
You need to begin addressing this sooner than later. Our blog library has an entire section on this topic.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am the owner of a three attorney general practice firm in Chicago, Illinois. The other attorneys were recently hired associates right out of law school. We have two legal assistants, one paralegal, and a receptionist/bookkeeper. I manage the firm and practice law. I am finding it more and more difficult to do both and I am discovering that I enjoy managing and running the business more than I do practicing law. I would like to spend all of my time to running and managing the firm. Your thoughts are welcomed.
Response:
You are not alone. This is a common problem in law and other professional service firms. I have similar problems in my own firm – it is very difficult to serve two masters – serving your clients and managing your firm. Eventually as you grow you have to pick one – client service (doing legal work) or managing and running your business – as the area that receives your primary focus. This is not to say that you should not do both – but you select the primary area that you are going to focus on and get help with the other area.
A question that I typically ask my new law firm clients – what do you want to be or do – be a business person or a lawyer. The answer to the question often provides a hint to how you should structure your firm. If you want to be more of a business person – hire legal talent to help with serving clients and performing legal work and spend more time working on your firm rather than in it. If you want to be more of a lawyer and do legal work and serve clients hire a legal administrator or business manager (this is more than an office manager) to manage and run your firm.
I have more and more owners of small law firms that are managing their law businesses and not practicing law. I believe the appropriate direction is what makes you happy and what type of work you enjoy doing. Your practice should support and fulfill your personal goals, what you want out of life and what makes you happy. If that is managing – then manage. If that is doing legal work – do legal work.
Two great books on this subject are – The E-Myth Revisited and The E-Myth Attorney – available on Amazon. The theme of both of these books is:
Small law firm owners often spend too much time being the technician (i.e. lawyering) and not enough time managing and innovating. In the long term this can have a negative effect upon value when the owner decides or retire of otherwise exit the practice.
Think about where you want place the priority of your focus – working on your firm (business) or in it.
I believe that at your current size and your limited number of revenue producers you can’t afford to be a full-time manager until the firm grows to at least five lawyers and or several serious revenue producing paralegals (not dabblers but producing $150,000 – $250,000 per year). I suggest that you take a phased approach toward this goal. In the short term you may have to work harder as a revenue producer and a manager and business developer. In the meantime you will have to wear both hats. Be patient.
As AI continues to reshape all walks of life as well as the practice of law, firm management and innovation will become even more important to remain competitive. This is a strategic management area that will require more of your management time. Small law firms that have implemented AI are reporting efficiency gains that have translated into higher profitability and improved well-being.
Good luck with your transition.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a partner in a six-lawyer plaintiff personal injury firm in Indianapolis, Indiana. There are three equity partners and three associates in the firm. We are in our 20th year of practice. The equity partners are in their mid fifties and our associates are in their late 30s and early 40s. The firm started out as a general practice firms and ten years ago we began focusing one hundred percent on personal injury plaintiff work. Our cases range from typical auto accident and slip and fall cases to medical malpractice, product liability, and complex catastrophic injury cases. While we receive much of our work from the internet and other forms of advertising, referrals from other law firms is where we receive the lion’s share of our cases.
Over the years we have been approached by other law firms interested in merging with us our firm and we have declined. However, we are beginning to have second thoughts. The large national personal injury are having an impact on our practice and we are losing some business to them. We also have concerns about the impact that venture capital and private equity investment is going to have on the future of personal injury firms. Arizona now allows non lawyer ownership and other states may follow. We would appreciate your thoughts concerning this trend.
Response:
Most U.S. states follow rules derived from the American Bar Association Model Rule 5.4, which generally prohibits non-lawyers from owning law firms or sharing legal fees. However, some jurisdictions are experimenting with new models:
Venture capital firms are pushing for similar reforms in other states where restrictions block traditional venture investment.
Private equity and venture capital firms are increasingly investing in:
These models blur the line between law firm, consulting firm, and tech company.
While full venture capital ownership of traditional U.S. law firms remains limited due to ethical rules against nonlawyer ownership. The Management Services Model is the primary workaround approach being used. This model separate the practice of law from the business operations. Two separate legal entities are created.
The law firm signs a long-term management agreement with the management services organization.
The management services organization typically handles all non-legal operations, including:
In large consumer-facing practices (like personal injury firms), the management services organization may also run:
Instead of owning the law firm directly, investors earn revenue through service fees.
The management services organization model is most widely used in high-volume consumer legal sectors, such as:
While we Arizona, Utah, and Management Services Organization workaround models are in play these models are raising concerns among regulators and bar associations.
The key worry is that investors may indirectly influence legal judgment, potentially violating rules established by the bar associations that require lawyers to maintain independent professional judgment.
It is imperative that strong ethical walls be put in place between the law firm and the management service organization.
Since a majority of your business is referral based I don’t believe you need to be concerned in the short-term. If the trend continues there will a competitive impact and an impact on your internet and other marketing investments. Non-lawyer ownership of law firms has been in full force in the United Kingdom and Australia for several years and a trend likely to continue in the United States. Several other status are exploring now-lawyer ownership.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
We are a thirteen attorney law firm in San Diego with four equity partners, three income partners, and six associates. We are a business litigation firm and we are in first generation. The four equity partners founded the firm and manage the firm. A few years ago we held our first retreat. Everyone enjoyed the experience but when it was all said and done nothing changed – no decisions made during the retreat were implemented – and many feel that the retreat was a waste of time. There has been some recent discussions of holding another retreat and several partners feel that we should not due to our failure to make any changes whatsoever. Do you have any suggestions?
Response:
This is a common problem that many law firms experience – especially the retreat was their first retreat. You need to be sure that you come away from the retreat with a specific plan for follow-up action on every problem discussed. If you decide to start a telling search to fill a lawyer, paralegal, or staff position, or if you have assigned several attorneys or staff members to work further on a specific problem and to report the results, it is important that the individual assignments and target dates for reporting and completion be made explicit. Determination of this kind should be recorded and made part of the minutes of the retreat. Further, a system of follow-through meetings to assess progress is advised, in order to maintain momentum achieved at the retreat. Many firms benefit considerably by incorporating specific retreat decisions into a 12 month growth plan and schedule of activities to meet firm objectives. Planning of this kind typically results in significant firm progress, even though initial resistance to these efforts by some firm members may be substantial.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am a partner and a member of a three member management committee in a eighteen attorney firm in Chicago. During the past year we have discussed conducting an offsite long range planning retreat in the fall that would include the partners and other attorneys in the firm. We have never done this before so this would have been a new experience for us. However, with the COVID-19 crisis we have cancelled our site reservations and are wondering whether we can still conduct our retreat remotely? Any thoughts you have would be appreciated.
Response:
Sure you can. I suggest that you consider a virtual retreat using Zoom or some other communication platform. Organizations are holding virtual conferences, churches are conducting virtual services, and law firms are conducting virtual retreats and planning meetings. Last week I attended a two-day video conference and the process went extremely well. There were even small group breakout sessions that focused on specific topics. While a in-person format is preferable, you can get the job done with a virtual retreat. During the current crisis a retreat and long range planning is more important than ever. So, I suggest that you try a virtual retreat.
Here are some suggestions regarding planning your first retreat:
A retreat differs from the typical firm meeting in that it is a specific structured program with an agenda of topics and procedures agreed to in advance. The purpose of the retreat is to help facilitate change. For example:
Setting up a retreat involves all of the following steps:
The first step involves key members getting together to discuss their initial thoughts about the firm, its structure, and its organizational problems to brainstorm for possible topics. Partners and other members of the firm can also provide written suggestions for the agenda. Tentative retreat objectives can be formulated at this time.
A preliminary program is formulated. An appointed retreat coordinator or team develops the preliminary program including tentative:
The coordinator works on further defining goals and objectives of the retreat, how it is to be coordinated, and who will be responsible for various functions and activities. Coordination checklists and timetables are developed.
The preliminary program is circulated for comments and suggestions. Changes are accommodated and the finishing touches are put on the program. The partners agree on all details of the agenda and program and the program is finalized.
The brainstorming process will require background data. Internal data such as firm financial reports, client lists, lawyer productivity reports, etc. and external information such as demographic and census data, information on competitors, business trends, etc. should be compiled and organized into appropriate presentation formats such as PowerPoint presentations, whiteboards, flip charts, and handouts.
A moderator should be assigned to the retreat. The moderator can be a member of the firm if the firm has a member who can be objective and has the skills to properly facilitate a retreat or the moderator can be an objective outsider who has the requisite skills. The moderator serves as the “tour guide” and keeps the retreat on track, in focus, and provides resource information when required. The moderator should be given the authority to control the retreat and enforce the ground rules.
A retreat will not be successful unless an implementation plan is formulated during the actual retreat and made a part of the proceeding. Specific assignments and completion dates must be agreed upon during the retreat itself and schedules for reporting on progress must be determined.
At the conclusion of the retreat the outcome of the retreat and the implementation plan should be summarized.
Within two weeks after the conclusion of the retreat a retreat report should be written and distributed to all firm members in attendance. Completion dates should be placed on the firm’s docket control system. A retreat follow-up item should be on each and every firm meeting. A post retreat evaluation should be conducted six months after the conclusion of the retreat.
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John W. Olmstead, MBA, Ph.D, CMC
Question:
I am the managing partner of a fourteen attorney business law transaction and litigation firm in St. Louis, Missouri. Our area is in lock-down as a result of COVID-19 and everyone in our firm except for our receptionist has been working remotely. We had planned on putting in place a strategic plan this year and completed a couple of initial meetings. As we move forward how do we plan in this environment or should we even try?
Response:
These are definitely uncertain times and the legal profession will be facing an uncertain future. I believe that COVID-19 will leave a lasting imprint on the legal profession and will change and accelerate law firms into the digital age. This digital transformation will effect law firm clients, law firms, and the judicial system. Status quo will be altered permanently and new operating procedures will be developed. Entrenched legal service delivery methods will be abandoned. The following practices that we are seeing now will become commonplace:
Competition for legal talent will intensify and commodity work competitive will be greater than ever.
I believe that long range/strategic planning will be more important than ever but more difficult. However, right now everyone is in survival mode with a focus on the day to day. While these are unusual times with a very uncertain future, short and long-term planning will be more critical than ever. Right now I believe your focus should be on short-term tactical operational planning with three month planning horizons. The following are just a few of the topics that you should focus on:
You will need your short-term planning to be flexible as the current situation changes.
Once you have a handle on the short-term you can continue working on your strategic plan. I suggest that it initially be for a five year time period. You should incorporate some degree of scenario planning with different strategies for different future scenarios. While the future may be uncertain an uncertain plan is better than no plan at all.
Finally, if you have people in your firm that are casual users of technology I suggest that this is a good time to push them to get up to speed. Recently I was speaking with the partner of law firm that advised me that he wished he was more comfortable with technology and he is severely handicapped since his IT skills are limited to checking email and browsing the web.
Good luck!
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John W. Olmstead, MBA, Ph.D, CMC
Question:
Our firm is a twenty-attorney litigation firm in Miami, Florida. We are managed by a three-member management committee supported by a firm administrator. While our committee and our firm administrator are entrusted to make many of the operational decisions, all partners must weight in on and vote on all major decisions as outlined in the firm’s management plan. Currently we do not have a strategic plan and our firm administrator has suggested that we can accomplish this in a one day off site retreat with all the partners. Is this realistic?
Response:
This is a little bit aggressive and optimistic. The strategic planning process is as important as the end result – the strategic plan document, so you don’t want to rush the process. Two sessions a few weeks apart would be better as it would give some time for the ideas and discussion from the first session to cook and simmer until the second session. However, you might find that one session is all that you are going to get. If this is the case you need to do some homework before the retreat. I suggest the following:
Once the retreat is over the management committee should finalize the rough notes from the planning session into a initial draft of the strategic plan and circulate to all partners for review and comment. Hopefully, the management committee based upon comments can finalize and launch the strategic plan within thirty days, if not a partner meeting should be scheduled for additional discussion.
Using an approach to similar to what I have outlined will improve your chances of a successful one day planning retreat.
Good luck.
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John W. Olmstead, MBA, Ph.D, CMC