Law firms are facing a new challenge as corporate clients are increasingly using their own in-house legal teams and AI tools to do legal work themselves, threatening the traditional growth and revenue model.
According to new research from HSBC in their yearly UK Law Firm Strategy and Investment Survey, almost three-quarters of 100 law firms the bank surveyed said greater use of technology in legal delivery is driving disruption, while 60 per cent cited clients bringing more work in-house.
Corporate clients are increasingly bringing work in-house to be managed by internal legal departments, and using AI tools to help, which is leaving firms scratching their heads over how to charge for their highly specialised services which have historically been billed by the hour.
“Clients increasingly try to do more for themselves, and their accessing plenty of their own AI tools in order to do it,” Pennington Manches Cooper chief executive, Helen Drayton, said.
“Some clients can also arrive at meetings with their own AI-generated strategies which the lawyer must spend time advising against. How do you decide how to charge for that?” Drayton said.
As well as this, some clients are side-stepping law firms’ services by using AI tools the firms have suggested themselves.
David Beech, chief executive of the London-listed law firm, Knights, said many clients’ General Counsels (GCs) “may even be using the likes of AI solutions that partner firms have themselves recommended or developed to meet their needs.”
“This finds firms more pressured to make the case for an ongoing relationship and regular work where they believe they continue to add most value to a set of problems,” Beech said.
Victoria Ritchie, head of professional and business services at HSBC told City AM, AI is “already challenging the traditional law firm operating model, accelerating changes in how legal services are delivered, priced and resourced.”
AI integration ‘a major organisational challenge’
As well as this, of all the organisational challenges HSBC asked the law firms to comment on, effective AI integration came out as the most frequently cited challenge, with 73 per cent reporting they see integrating AI as a “major organisational challenge.”
“AI is moving rapidly from a topic of experimentation to a strategic priority for law firms. Its impact won’t be limited to automating individual tasks; it has the potential to reshape how firms deliver services, develop talent and compete for clients,” Ritchie said.
“The legal organisations that succeed will combine innovation with trust, speed with discipline, and technology with human judgement,” Ritchie continued.
Almost every firm surveyed has a generative AI strategy in place, but senior leaders are now focused on embedding the technology securely and effectively across their businesses.
However, they are facing certain hurdles. Key barriers firms cited include having the time and opportunity to explore the AI market, the legacy systems and data involved in implementation workloads, as well as cost, and uncertainty over return on investment.
Commenting on the findings, finance director at Roythornes, Sam Elkin, said law firms are “now wrestling with a very different dilemma: what a fresh wave of potentially transformational technology will now mean for the business model of a law firm as pressure builds to see advantages of genAI investment”.