Unlock Editor's Digest free of charge
FT editor Roula Khalaf selects her favourite stories on this weekly newsletter.
Time isn’t on the side of the billable hour. Having lawyers account for each a part of their working lives isn’t entirely healthy. But advances in generative artificial intelligence will put pressure on the legal career's traditional fee structure anyway. The upheaval could possibly be painful.
Currently, most lawyers are optimistic concerning the impact of adopting summarizing, searching, authoring and reviewing technologies on margins and revenue. Many hope for productivity gains that can help them produce more billable work—and sell more.
But there may even be losers. A 3rd of the UK law firms surveyed by PwC consider that generative AI may have a negative impact on profits and margins. AI could weaken one in every of the competitive benefits of the biggest firms: they’ve numerous junior talent that could be deployed on large, complex litigation and transactions.
A much bigger problem comes from the standard reliance on junior staff, who generate disproportionately high profits. The gap between their salary and that of partners is larger than the difference in hourly rates. Since AI is probably going to cut back the workload of non-partners, it is usually likely to cut back profit margins.
In response, corporations may change their pricing models. Flat fees will change into more common, although essentially the most complex work will proceed to be billed by the hour. Value-based fees could also be more consistent than time-based ones. Realistically, nonetheless, clients will expect at the very least a number of the AI savings to be passed on.
Legal AI tool providers may even profit, especially those who train their models on authoritative legal sources. Companies like Thomson Reuters and Relx have invested heavily in AI-powered legal research. Relx has gained more pricing power after spending greater than a billion dollars on its tools over the past decade. AI is the principal driver of faster underlying growth in legal, which analysts say will rise by one percentage point to just about seven percent this yr.
Not everyone seems to be convinced. Researchers at Stanford University found that even tailored legal advice AI tools hallucinated “alarmingly often.” In addition to factual errors and inaccurate citation information, the answers tended to match the user's incorrect assumptions. Sympathetic behavior poses a novel risk in legal contexts, the researchers said.
Such concerns might reinforce the instincts of technologically conservative partners. But there are risks in doing nothing. In principle, few industries are more affected by AI than legal services. Firms that make AI work can take business away from those who don't.
