KPMG has taken a major step toward gaining approval to operate as a law firm for the first time, possibly altering the larger legal landscape by changing the market for lawyers, clients, and others in the industry.
A committee that advises the Arizona Supreme Court has recommended that KPMG's subsidiary, KPMG Law US, be licensed to operate as an "alternative business structure" -- a law firm with non-lawyer owners.
Until recently, almost all jurisdictions prohibited non-lawyers from owning law firms. In Arizona, however, an alternative business structure may be owned by non-lawyers.
Some ABS law firms have no lawyer ownership at all. Regardless of ownership, though, every ABS law firm must have a "compliance lawyer" who is charged with ensuring it follows all the ethical rules that apply to an ordinary law firm.
Big Four accounting firms have never been legally permitted to practice law. If KPMG wins court approval, it and other ABS law firms likely will bring new energy to the buzzword cross-selling by offering clients a single source for accounting, legal, and similar services in a new way.
KPMG says that its ABS law firm would complement the services of traditional law firms. But it seems likely that at least part of KPMG's objective is to bring some of that law firm work under its own roof. Large law firms may be eyeing this development with concern and considering their options in dealing with this soon-to-be competitor.
The Arizona Supreme Court created the ABS program in 2021 to help promote public interest and access to legal services. It considers those issues in determining whether to grant an ABS license.
Some academics, lawyers, and business owners oppose non-lawyer ownership of law firms, arguing that non-lawyers will pressure lawyers to make decisions that violate lawyers' ethical rules.
These opponents doubt that ABS law firms will reduce the cost of legal services or increase the availability of legal services to the needy. The Arizona Supreme Court, however, created the ABS program to achieve exactly these goals.
What effect ABS law firms have on the wider legal market is unclear right now, but one thing is certain -- interest in creating ABS law firms is increasing fast. The backlog for ABS applicants is currently eight to nine months.
About half of ABS applications seek approval to work in the personal injury or mass tort areas. Other ABS applicants seek to create ABS law firms focused on estate planning, securities law, immigration law, family law, and other areas. Some law firms are seeking ABS designation even though they have no non-lawyer ownership for now -- with the idea that they will be able to sell their firms to non-lawyer investors in the future.
KPMG isn't the first nationwide entity to seek an ABS license. Rocket Lawyer, for example, obtained its ABS license last September. It's not difficult to see how this sort of an operation could cut into the profits of lawyers at traditional firms.
ABS law firms believe the new rule permitting them to have non-lawyer owners will help transform legal services and increase competition, benefiting legal consumers. Many lawyers and business groups disagree -- and Arizona is an outlier in the breadth of its ABS licensing program. Utah and Washington, D.C., have similar programs, but they are much narrower.
The Arizona licensing authorities are convinced that moving forward with the ABS program will benefit the community, and many in law and legal-adjacent fields are rushing to enter this intriguing new marketplace.
Arizona's ABS law firm licensing seems to be here for the long term, and law firms nationwide are beginning to realize that they will need to respond. Whether those responses are likely to maximize client welfare, or law firm profits, depends on whom you ask.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Brad Denton, founding partner at Denton Peterson Dunn, helps clients obtain approval to operate as ABS law firms and acts as ABS compliance attorney.