Andy Kvesic

[00:00:00] Andy, thanks for joining today. Hey, Ted. Thrilled to be here. Yeah. This has been a long time coming. I, I reached out to you guys in the early days when you'd first got licensed, and I think you were You guys were busy getting everything set up. So it's, uh, it's exciting to have a, a, an ABS leader on the podcast.

This'll be the first time, and I know there's a, a lot of interest in the subject. MSOs, ABSs, it's, it's all the rage these days. So we're-- I'm looking forward to having this conversation. It's everywhere. Everywhere on my LinkedIn, I talk about it every day. We were busy when you first reached out. We're even busier now, so, um, I'm, I'm thrilled to talk about it and, and to be here with you.

So thanks for having me on. Absolutely. Why don't we start with, uh, with an intro? Tell us a little bit about yourself and your firm and, um, kinda where you guys sit in the marketplace. Sure. So I'm Andy [00:01:00] Kovacevich. I'm the CEO of Aprio Legal. We are, uh, a business law firm headquartered in Scottsdale, Arizona.

What's really, really unique about us is we are part of a larger organization called Aprio, which is an international accounting firm that has a variety of professional services, including legal, tax, business advisory, wealth planning. Um, and so we were one of the very early firms that got an alternative business structure license and embraced non-lawyer ownership in Arizona.

We ended up finding a really strong partner in Aprio that saw the world the same way we did and, um, partnered with them last May. So, um, on our-- You know, within the walls, we're just a traditional law firm that has really successful business owner clients, but beyond that, we're part of a really large organization that, um, is doing a lot of different, really special things, um, in the interest of, you know, client-centric, holistic professional services.

Yeah. We might've talked about it the last time [00:02:00] we spoke. I-- we leveraged something here at Info Dash called QSBS, and we had to round up specialists in the accounting space, legal. It was, um, it sure would've been nice to have that all under one roof because it was a lot of brain damage trying to get people coordinated and on the same page.

Um, we ended up making a, a switch and getting a more sophisticated, uh, tax partner to, to help us that probably would've helped then. But yeah, having legal and accounting under one roof would've helped. What are some other kinda scenarios, um, that where having that, um, expertise in one place adds value? So what you're describing is, is our-- defines our why and our thesis and why we went down this path.

Um, I, I'd worked in a variety of different roles in the legal profession, both in traditional law firms and then in general [00:03:00] counsel roles, and then for entrepreneurs, and I saw this huge disconnect between how professional services are Delivered. And, um, you take ex-estate planning as a simple example. You know, a client may go see their estate planning attorney, and there are, you know, tax implications related to the estate plan.

Well, what, what historically has happened is the estate planning attorney may know of some tax person or CPA that's at a different office down the street, and so they tell the client, "Here's that person's card. Go make an appointment with them." And then the client goes down there to meet with the tax person and then realizes, "Hey, there's some estate planning opportunities.

Maybe we could build in some life insurance or other ways to manage your money that would help offset the taxes that came as a result of the estate plan." So, so then the CPA gives you an introduction to the wealth planner who's at a different office down the street, um, and the client goes and sees that person.

And, and neither of those three professionals are communicating with each other, and I've seen it with my own eyes. You have really smart clients who are, [00:04:00] who are doctors, who are surgeons. Educated people will come to our office with a manila folder just full of paperwork from these different professionals.

So I just thought there was a better way to do that, and I, a-and I just thought all those people should and, and could exist under one roof. And so that was our thesis for, for Aprio and Aprio Legal. It's, it's the successful business owner relies on a lot of different professional services for them to grow their business, for them to be successful.

Why can't all those people exist in one place, where instead of forcing the client to go see everyone, all of those disciplines come to the client and they collaborate, and they come up with a plan ahead of time, present it to the client, and the client says, "Great," and then goes back to whatever they were doing.

So that was the vision. That's just one example for how it works in estate planning, but we see a lot of that overlap in our corporate and transactional services, where we can pull in the, the due diligence teams, the [00:05:00] advisory teams from the Accounting side that can do things like quality of earnings studies, other pre-deal due diligence, valuations, things like that, where again, historically you'd go to your corporate attorney who's at one company and then find an accounting firm at another company, and you're paying each one probably at an hourl- some hourly rate and, and neither of them are really talking to each other, and they're charging you just to schedule a call.

So it's just so inefficient. Um, and, and I think, you know, what, what we try to do is solve that and just make it easier for the client to, to be successful and to grow their business. Yeah. I, I mean, I can tell you firsthand with the QSBS process, it was a lot of tail chasing, uh, on our end, and it was not efficient.

It was very expensive, and we, we absolutely could have benefited from having that sort of expertise in one place. So y- um, you know, ABS and MSO, the, the concepts are getting a lot of attention right now because there's a, a big [00:06:00] PE push into the legal space and, um, I've talked about MSOs quite a bit on here and, you know, they seem like a little bit of a backdoor.

Um, they're ethically, um, they've been e-ethically vetted and they work, but it doesn't seem, uh, it seems difficult. There are challenges drawing clean lines around the practice and then everything else, and that's gonna get-- those lines are gonna get even more blurry as we tech enable legal service delivery, right?

So the practice, um, as we build our, you know, tech enabled legal service delivery mechanisms, the, the practice of law is going to inform the, the t- the underlying tech that's owned by the MSO and, you know, there's this circular learning loop that happens. But from a ownership perspective, those [00:07:00] two things are treated separately, which feels messy to me.

Um, you know, I've, I've used the metaphor of the practice generates cash flow and the MSO generates enterprise value, and I know which I'd prefer if I were, you know, I prefer enterprise value, right? Because that's a, that's a future payday. Uh, cash flow is a one time, one time thing. So what is your take on kind of the MSO versus ABS structure and why obviously we only, there's only one place, um, or very few small number of places where you can stand up a ABS, but what's your take on kind of the difference and where things might be going?

There's a lot of people that are very passionate about this topic. Um, I think it's important to, to go back in time just a little bit and, and make clear that MSOs have existed for a long time in [00:08:00] the legal profession, over 10 years. I mean, these things have been going on behind the scenes. They weren't as public until 2021 when Arizona allowed non-lawyer ownership through the alternative business structure program.

So I think what that did is it awakened p- the notion, people's senses, in that non-lawyers can now be involved in law firms from an ownership standpoint. And so then the, the capital markets start looking at law firms as an investment opportunity. It-- Meanwhile, MSOs have already been going on, but through an MSO, you can't own a law firm.

Through an ABS, you can, and that's the big difference between the two. Um, as time went on, the investors, who like to move really quickly, realized that ABS has a lot of regulatory oversight. It's not easy to get a license. There's a lot of, uh, scrutiny. There's background checks. The people have to be squeaky clean and qualified to, to own an ABS, whether you're a lawyer or not, [00:09:00] and it takes a while.

I mean, the average application is now taking six to eight months. And so I think what happened is the capital markets, the private equity firms said, "We need to move faster. What's the way to do it?" And that's when, that's when people started talking more about this MSO concept because you can, you can create those entities and, and, and go acquire the back office of law firms much more quickly.

So the flip side of the speed of an MSO is the lack of, the lack of regulation. Um, with, with ABS law firms, we're regulated by the Arizona Supreme Court. So historically, the courts in, in all the states across the country regulate individual lawyers. The difference in Arizona is, with the ABS program, you're re- the Supreme Court is regulating your law firm.

And so- Interesting ... you have to do things like, um, compliance audits of yourself twice a year and document those reports. And if the ABS staff ever ask [00:10:00] for those reports, you have to produce them fairly quickly. It's not something you could just generate, you know, overnight and then turn it over. So any, any sort of infractions at the firm have to be reported to the ABS committee and to the state bar.

And if, if, if people are being unethical, you could not, not only would the attorney get sanctioned, but the business could lose its license, okay? Which is a risk that traditional law firms don't face when attorneys, you know, engage in unethical behavior. It's specific to the individual. On top of all that Every ABS firm has to have a compliance lawyer, and that person is effectively the ethics officer for the organization, is responsible for the conduct of all the lawyers and the non-lawyers.

And then to take it even a step further, you have to renew your license every two years. Okay? So all those things that normal firms don't have to do, that an MSO-backed firm doesn't have to do, we have to do. And I've, I've made the argument that the practice of law at an ABS is so [00:11:00] highly regulated and the ethical standards are so much higher, it's essentially a safer place for clients to do business because of how stringent and, and how much of a microscope there is on us.

Those issues aren't present in an MSO for the very basic reason that the non-lawyer owners don't own any part of the law firm. So no one really knows what's going on And, and I'm not knocking MSOs. I think there's a, there's a place and, and they can be a really good tool for, for law firms that need, um, capital and wanna grow.

But there's zero regulation over, over MSOs, and that's why there's just not a lot of data out there about what's going on. Yeah. How much of all of these, all of this scrutiny is due to the fact that it's a new thing here, right? It's been-- It, it's existed in the UK and Australia for, for many years, over a decade, but it's new here, and there's a lot of protectionist [00:12:00] thinking and, um, uh, pushback on the whole non-legal ownership, um, concept.

So is this something you think that, you know, like most things that start off, like if you look at, you know, medical marijuana, like that started off very highly regulated and then, you know, states start there, and then it goes recreational and, um, rules get looser. Is that a s- gonna follow a similar trajectory here, or do you think like all of these controls are, are long-term concepts?

It's hard to say. Um, the word, uh, the concept of a new thing i- is not common in the legal profession. We don't, we don't really-- There's not a lot of disruption in our space, so anytime there is a new thing like this, yes, people are gonna have very, very strong opinions about it, um, because it's never been done before.

But, but, but in defense of, of MSOs [00:13:00] and, and c- owning the back office of a law firm, if you look at every law firm in the country, whether you're a two-person shop or, or a giant, you know, Am Law 100 firm, you're all-- they're all using external vendors to help support the business. So they're all using some form of, you know, whether it's Westlaw or LexisNecklace, Nexus to do their legal research.

They're using external IT vendors to help manage their data. They're using external companies to, to be their couriers to go deliver papers, um, to the courthouse. They're using, they're using external vendors for their, for their AI infrastructure, whether that's Claude or Harvey or whatever. They're using external vendors for their, for their legal recruiting and legal staffing companies.

None of those external vendors are owned by lawyers. So the only thing that MSO does is it takes all those vendors and smashes them into one place. So to me, it's not as terrifying as people think. It's simply consolidating A [00:14:00] j- a, a large group of services that all law firms need to function. I think where, where, where folks get tripped up and get really angry about it is there's this assumption, and it's unsupported, but there's this assumption that the private equity overlords are in the office telling the attorneys to gas up the profits, telling them how to practice law, telling them when to settle cases, telling-- directing them on legal judgment.

And look, I manage one law firm, I can tell you that's 100% not true at our shop. But I think that's where the fear is coming from, this belief that private equity, that non-lawyers are bad, that private equity firms are bad, and they're gonna ruin the legal profession. Well, the concept that non-lawyers don't have control over legal work is a fallacy anyway.

Look at inside legal departments, right? They're owned by corporations and who direct [00:15:00] traffic that are held accountable from boards of directors and shareholders. So the, the thinking that, l- you know, the direction of legal work can't be influenced by non-lawyers is a fallacy. Um, how much of- That's a great example.

It's a great example. I think another good one is, like, um, in-house, uh, insurance attorneys. So you have giant insurance carriers like State Farm or whoever that have their in-house legal team and I would, I would submit that, you know, their job is to make sure that the carrier is not paying a fortune out in every single claim that comes in, right?

And so, um, with that said, at the end of the day, in every state, it-- the attorneys have an independent obligation, right? Independent obligation to follow the rules of ethics. Whether you, whether you enact laws that say that or not, that rule exists under the model rules to act independent objectively when you're giving the legal advice.

And so [00:16:00] if anyone is doing that, whether you're at an MSO, a traditional law firm, or an ABS, yes, you should absolutely be sanctioned for it. Yeah. How much of the motivation behind what you did had to do with capital? Was it more professional, like, uh, keeping everything under an umbrella, or did the opportunity to h- leverage outside capital to scale the business also factor into w- why you guys went down this path?

It factored in. Our primary driver was this belief that multidisciplinary professional services should exist under one roof. That's why we did it. Um, I also thought that a law firm as a business would benefit from having really smart businesspeople help with the operations. So that was our driver. Um, where it got really good for us is that when, when we found, uh, when Aprio and, and, you know, we found each other, they had a [00:17:00] financial sponsor in Charles Bank, which is a blue-chip private equity firm.

So A-as, as a, you know, 10-lawyer law firm before we joined Aprio, I couldn't, we couldn't have afforded the AI software that we have. We couldn't have afforded the Harvey suite that we have. We couldn't afforded, we probably couldn't have even afforded these headsets. And so the difference is you partner with this huge organization and now you have teams of people.

You have an HR team, you have, you have an internal accounting team that's doing our, our three-way, um, trust reconciliations. Like, you have a company who's gonna deploy $500 million on AI and technology over the next five years. Like, we didn't have that kind of cash before, but we get to benefit from that.

And so for us, it's, it was incredible. It, it's been icing on the cake, um, for this relationship and for our business and for our growth. Yeah. So glad you brought that up, the kind of the tech transformation [00:18:00] and the how insufficient partner capital is going to be in the mid-market and below to fund the infrastructure necessary to c- to stay competitive, right?

Yeah, like, you know, I, I see this transformation happening in waves, and I would say most, uh, law firms right now are in wave one, which is kind of the bolt-on or copilot era. Um, you know, wave two will be infrastructure and data, getting that in order. Um, wave three will be process engineering where You know, uh, legal workflows get redesigned from first principles, uh, to, to leverage tech and, and humans in the loop.

Um, the fourth wave being agentic or the autopilot wave, and then the fifth wave really being around the business model itself, which y-you guys kind of started there. [00:19:00] Um, and, you know, there's overlap in, in these waves. Uh, there's people or there's firms who are, you know, in between wave one and two now. I feel like ABSs and even MSOs disrupt that traditional kind of flow of the transformation.

But, um, you know, if I were sitting at a mid-market firm and thinking about, "Okay, how do I, how do I compete with, you know, my peers and firms further up the Am Law ladder on building out the infrastructure?" I'd be thinking seriously about MSOs or, or ABSs. Yeah. So it comes down to how do you pay for it? All those things that you want for your firm, the growth that you want, how are you going to pay for it?

And smaller firms, you have, you have basically two options. Um, one, you can go to a bank and borrow money, okay? Um- Interest ... the bank is not exactly a, a strategic business partner. They're a [00:20:00] creditor, and, and you can, you can tap that line of credit, you can borrow money, but if you miss a payment, like, they're gonna come, you know- Interest

take your equipment and have a lien on all of your receivables. So not exactly like an aligned business partner. Option two is you go to all your business partners and say, "Hey, we're gonna self-fund this, and in December, when we usually pay a distribution, we're just not. We're gonna keep all that money and invest it in technology."

Um, you, you're not gonna, you're not gonna get consensus at a firm on that. Not only, you know, t-taking a pay cut and we're using it to buy, you know- Interest ... software. Like, it, that's just really hard to convince a group of lawyers who are accustomed to making a certain amount every year. So then what do you do?

You either, you either don't invest back in your firm, you don't grow, you don't take the loan, or you figure out a better way to do it. And so ABS, MSO, whatever path, the, the non-lawyer investment is a way to bring [00:21:00] on a capital partner that's aligned with you, that wants to grow with you, that wants you to succeed and, and stated another way, that won't let you fail And that's just a better relationship.

The money is great, but having a strategic partner who's gonna work with you on how to deploy that capital, how to put it to good use, how to put it to a use that's gonna help you grow and get to where the firm wants to be, that's what's really unique about the non-lawyer investment. So I think, you know, I ran a small firm.

It's really expensive to run a firm. It's, it's really hard to recruit people. It takes a long time. The difference now is when I wanna add, I wanna add 80 lawyers in five years and, and I go to the board and tell them my plan, their response is, "Let's do it in three years, and go do it." Interest- "And, and here are the resources to go do it.

Here's the staff, here's the capital, here's the platform. Go do it." Like, that's, that's pretty special and, and we-- that's something that we would not have been able to do as a small independent law firm. [00:22:00] Yeah. Y- so you brought up a good point about, like, getting alignment within the partnership on capital investment, and there's a n- number of headwinds to that.

Uh, the-- uh, probably the biggest headwind is retirement horizons. So the attorneys in the partnership that have the most influence are the ones that are, have the closest retirement horizon, right? Um, they've been around the longest, they're gonna have the most influence. So convincing me to invest in a project that has a five-year break even and I retire in three, that's gonna be a tough sell.

So it's a very logical position for me to vote no on that. I mean, that's a major headwind. And then, you know, the, the ABA rules themselves, um, five four obviously, but also five six, like the, that creates the, you know, almost hyper portability of partners to move from one firm to another and take their book of business with them almost without consequence.

W- you [00:23:00] know, uh, I might not be here, even if I'm not retiring in five years, I may jump to the firm across the street. So willingness to invest in the firm, I feel like the ABA rules are really setting law firms up to fail in this new era. Like they made sense 10 years ago when you didn't need capital. It was all human labor that delivered output.

But now we're entering into an era where capital investment is going to be necessary, and I feel like the ABA rules are, are kind of holding the industry back. Yeah, I mean, look, I'm not, I'm not gonna sit here and say every firm needs to have a non-lawyer investor, every firm needs to be an ABS or an MSO.

It's not for everyone. A lot of firms don't need it. There's plenty of firms that are wildly successful without that. But there are, there are, I think, a lot more that could use help from really smart business people and really savvy capital sources. And I think it's, it's really a cultural thing in the legal profession when, when in our business, law [00:24:00] firms are, are built to support and promote the individual, promote individual success.

It's all about individual comp and, and, and getting paid your bonus at the end of the year, getting your distribution and taking the cash in the business down to zero 'cause we don't wanna pay taxes. And then come January, we're gonna draw on the line of credit to pay our staff un- un- until we start making money in March or April, then we can start giving you all draws again.

Like, it's a, it's a ridiculous way to run a business. Uh, so- you wouldn't even run a restaurant or a popsicle stand that way, but that's how law firms operate and, and they're programmed to think that way. So, so going to that person that's been doing it a certain way for 20, 30, 40 years, who was around before email was around, right?

When you used to write letters in hard copy and mail it, right? Convincing that person that, "Hey, we're gonna invest back into the business and y- we're all gonna have to take it on the chin together for the greater good and to grow the organization and to turn that equity into not just a dollar of [00:25:00] equity means a dollar of profit, but a dollar of equity means a multiple that's gonna be, you know, paid at some future date.

It's gonna be more than just that dollar." It's gonna take a long time, and you're never gonna convince everyone. Um, I think the forward-thinking attorneys, the true business-minded entrepreneurial attorneys get it, and they've jumped on this And, and they're gonna be-- They're, they're at least two to three years ahead of, of everyone that's still sort of thinking through their options.

Yeah. You know, and there's a lot of talk now about with the MSO model, how these AI systems and learning loops are designed to self-improve with use from attorneys in the practice, and almost like a digital avatar is created that keeps firm or keeps clients more loyal to the firm [00:26:00] than just the individual lawyer, right?

If you're the rock star in, you know, XYZ area of, um, of legal and the firm has captured 80% of your expertise in their systems, I might be more loyal to the firm than I am you. Um, you know, uh, a-and the challenge with the MSO models, the MSO owns that, not, not the law practice. So, like, how you divvy up ownership, um, is potentially gonna have huge implications it-- for, you know, lawyers who are-- have really unique expertise.

Yeah. I mean, you bring up a good point on, you know, who owns what. I think what, what the good MSOs have done is, is you, you give the attorneys some skin in the game. You make them part owner in the actual MSO, and then you take that model, that really s- that really sharp operational model, [00:27:00] and go deploy it on different firms.

And so from the attorney's standpoint, it's like, look, you can continue practicing law. You're gonna have a lot better tech software resources to grow your practice. You're still gonna get, get paid, you know, as an attorney and represent your clients, but you're also gonna now have a piece of this enterprise who's doing this not only for your firm, but we wanna go do this for six other firms.

And guess what? As that company grows, your equity, the value of your equity, is also gonna grow. And, you know, half the attorneys are gonna say, "No, I'm just gonna work until, you know, I croak at my desk," because that's what lawyers are programmed to do, is just work and work and work and work until they can't work anymore.

Um, but I think a lot of attorneys get to that point in their career where they're like, "Man, what am I, you know, what am I doing? I'm, I'm 63. Like, I'm still grinding super hard. Do I really have another 10 years left in me to do this? And do I really wanna [00:28:00] now go try and figure out what Claude is and how to practice law using-- What's an agent and how do I-- I don't even know what I'm doing anymore.

Do I need to hire associates? Do I not hire associates because I've got these tools?" You know, some of them are just kinda over it and would be better suited to just, like- Here, take a check up front, get some equity, let us run your firm for you. You keep being that superstar lawyer that, that you are, but let us help run your business a lot better.

I think attorneys are gonna reach that point and, and I, I, I talk to a lot of them that are having those thoughts, that aren't ready to depart from their baby, the thing that they've built over the last 20 years. But they're definitely thinking about succession planning. Yeah. H- how would the ethical-- 'cause I've, I've heard that angle before and, you know, ethical questions pop up in my head.

If you have an MSO serving multiple firms, how do you, how do you build in, you know, ethical wall boundaries and, um, you [00:29:00] know, firm A that the MSO serves, um, is, uh, uh, coax a client and firm B serves Pepsi. Um, it seems like there would be some ethical things that would have to be sorted before, you know, um, you'd have to have some really clear boundaries.

It wouldn't be as simple as just, "Hey, let's just onboard new firms." Especially as it relates to practice tech. All the back office stuff, you know, HR, marketing, finance, that's an easier thing to navigate. But the actual practice tech seems like there might be some, some landmines around there. Yeah. So I'll tell you what would happen if it was an ABS.

At an ABS firm, the compliance lawyer would have to look at all of that and say, "How do we put these things on an island? How do we make sure that we don't have a conflict from this other firm that's part of the portfolio?" And then they'd have to put that in their compliance report and stand up in front of the ABS [00:30:00] committee on renewal and explain how their conflict check procedures make sure that you capture those conflicts between the two firms.

Um, and so you really have to be, you really have to be smart about that and careful about that, particularly at an ABS, because someone's gonna look at that and ask you. At an MSO, you hope that's going on, right? But we don't know. You hope it's going on. I'm gonna presume that attorneys are doing their jobs.

I, I presume that people are good and that they're honest, and I presume that there are people at the firms thinking about those things. Um, but- You, you may never know. And, uh, as, from, from an ethics standpoint, yeah, I think you absolutely need to run a conflict check. And then the next question is, how do you do that- Interesting

how do you, how do you do that without disclosing information about your clients? Like, how do you, how do you compare those names when, when the client of firm A hasn't consented to you releasing their information [00:31:00] to law firm B? I take the position that the fact that a n- that a client has even hired us as a client, that is privileged information.

Now, some lawyers disagree. Some lawyers will go on LinkedIn and social media and say, "We represented so and so." And I take the position that the fact that you hired us alone is privileged and, and because clients come to you with sensitive things, right? And so, so how do you then protect that data, protect that identity, but also balance the conflict check?

And there's a right way to do it. You have to be really disciplined and, and thoughtful about how you approach that, while also keeping those walls up, like you mentioned. Um, and it's something that we do at Aprio. We spend a lot of time building those systems to make sure we would capture those conflicts that could potentially come through.

And a good example of that is, like, for our, for our audit clients on the Aprio side, we just... The law firm doesn't, doesn't do any legal work. For any client that's in a test or audit client, w-we just, we're, we're not able to represent them in anything Interesting. Yeah, I know [00:32:00] KPMG has kind of the same model.

It's, uh, where, you know, if you're, if you're an ABS not doing accounting like, like Apprio or KPMG, you don't-- Th-those are different questions that have to be answered. Um, you know, I had on, uh, David McCarville, God, it's been a while now, from Fenimore, and we were talking about the, how much of the opposition to ABS is just pure protectionist mindset at play.

And h-he, he surprised me and said his firm actually supported the ABS rules. I think they were maybe the only one. Um, but it was a short list. That's the impression that I got. But, you know, how much, how much of this is just lawyers trying to protect, you know, through five-four, having some barriers to entry versus, uh, versus not?

Yeah, I think a lot of it is that. I think, um, I don't hear many clients [00:33:00] complain about ABS. It's typically lawyers and it's typically personal injury lawyers that are in a jurisdiction where they've been impacted by this new private source of capital. And so, um, the reason I think that everyone got really passionate about it is, is many of the early firms that applied to be an ABS in Arizona were in personal injury and mass tort, places where you need a lot of money to do marketing.

And so those firms who were pretty savvy thought, "If I could bring on an owner instead of doing litigation finance and doing these weird loans with clients and, and, and all that scrutiny and how messy that space is, what if I had a capital partner that could own part of the firm but then give us $10 million for advertising or f- or to acquire cases through lead generation?"

And it worked, and it worked really well. And what happened is I think the local firms, whether it's in Arizona or elsewhere, um, were getting th-there was more competition and, and they were, they were just getting outworked because they couldn't afford the marketing. They were getting less [00:34:00] intake because the marketing companies, the lead generation companies were gonna send cases to the people that pay them, right?

And so, um, I think that's what happened. I typically see the biggest critics of, of ABS and MSO are attorneys in the personal injury space. You don't hear a lot of AM Law 100 firms being critical about it. Uh, you don't hear any clients being critical about it. So I keep that in perspective when states like Colorado and Illinois, um, pass certain bills that have these really goofy collateral damage on traditional law firms.

Um, hopefully the dust settles, but, but to be clear, not every ABS law firm is a personal injury firm And not, not every ABS law firm got a license because they needed a private source of capital. There's a host of other reasons why the court started that program, and there's many firms that are, that are achieving the goals of the program.

Yeah, I mean, [00:35:00] let's be honest, in terms of like, um, I, I, I would... Personal injury, there's a lot of interesting things that go on in that space, and the fact that there's a lot of capital flowing in there, I think it does create the potential for something bad to happen. And, um, you know, that would be unfortunate i-if, if it did because there are real productive use cases with getting private capital into the legal industry, but starting there seems like a risk.

I think it's a risk. It, it was always a risk. There's always a risk that some lawyer's gonna be unethical. And, and i-it's amusing to me if you look at, I was just looking at the annual reports, um, in Arizona between the number of attorneys at traditional law firms that were, um, disciplinary actions versus the number of, of ABS attorneys.

I think it was like, it was, it was like over 300 [00:36:00] attorneys at traditional law firms in 2025 had some sort-sort of state bar investigation for their conduct. There were zero. Zero of them were, were related to ABS law firms, right? So, so there's not this like, non-lawyer ownership isn't automatically a trigger for unethical behavior.

Unethical lawyers exist everywhere, and who owns your firm isn't necessarily going to cause you to be unethical. I could think of a scenario where going back to that, that hypothetical on, on the firm that, you know, owes the bank and, and has a loan payment due, and guess what? They're sitting at a settlement conference with their client, and the other side has offered X and can wire the money within 48 hours, and the attorney's gonna get paid, and you're gonna tell me that attorney's not considering their financial situation during those moments?

I mean You, uh, I'm sure there's been plenty of situations where attorneys have settled cases because they wanted to get paid and they didn't have a lot of [00:37:00] confidence that they could take that matter to trial. Um, those are edge cases, uh, but, but the risk that an attorney is going to be unethical and be driven by profits over their client interests, that's existed since the beginning of the legal profession.

Yeah. It's just private capital starting there in a space that, you know, is hyper-competitive and it's more of a B2C kinda model, um, where you see billboards and, you know, um, I, I don't know, it just seems like there, there might be more risk. I had, uh, I had Josh Port and, uh, Trish Rich from Holland & Knight on the podcast.

Uh, by the time this comes out, it should be released. And, you know, they were dissecting, there's been a little bit of academic scrutiny over the ethics around MSOs, and they had-- Trish in particular was kinda writing up a response to that and had, um, made a lot of good points about, [00:38:00] um, how there's a lot of perception and assumptions that are made about how these things operate, and there's really a misconception about incentives.

Like, as a investor, wha-- you know, I got money on the line. Like, am I gonna go push my lawyers to act in an unethical way that puts my investment at risk? That's short-term thinking, and that's typically not how long-term investors operate. So it kinda runs counter to the whole concept that just because you have investors in there, I would say you're less likely.

They're, they're gonna y- y... They're gonna be putting scrutiny on you to make sure there's nothing that could jeopardize their investment taking place. Absolutely. I think that's a great point. Um, look, I'd also, I'd also argue that there's no private law firm in the country that just wants to break even year over year.[00:39:00]

There's no private law firm that just wants to make a little bit of profit each year. Everyone wants to be successful. Everyone wants to make money. It's most of the reason why people go into the legal profession. The people that don't care about money work in government like I did, right? So if, if you, if it's really just about Not making a profit, then you wouldn't be at a private law firm.

Um, with that said, it's okay to make money and help your clients achieve their goals as well. Our clients, the, the clients that we work with, they want us to be profitable. We help them grow. We help them succeed. They come to us, we solve their problems, we give them opportunities to grow their business, and they're the types of clients that want us to be profitable and don't mind paying us money to help them make even more money.

So there's a right way to do it. Um, the, the other example I, I bring up often for, for folks that are critical of, of non-lawyer, you know, ownership of law firms is, [00:40:00] you look at legal staffing companies or even recruiters, like legal staffing companies are not owned by lawyers, yet they can send lawyers to work at firms, um, and even charge a fee based on the attorney's first year production.

Now, how that's not fee sharing with non-lawyers, like it, it doesn't make a lot of sense and it-- I think it exposes some of the, some of the inconsistencies in the rules and that the logic for non-lawyer ownership and fee sharing is not, is not really there. And, and recruiters charge a percentage of first year, first year revenue all the time.

Um, and, and they're not lawyers, so you're essentially taking attorney's fees, 'cause that's the only way that law firms make money is from earning attorney's fees. You take a piece of that, percentage of it, paying the recruiter. Now, the, the ethical opinions say you can't pay an MSO based on your profits or based on a percentage of your [00:41:00] attorney's fees, but for some reason you can pay a recruiter the same thing.

So t- I've, I've yet to hear a good explanation for that. Um, but these things have existed before our eyes for, for so many years. Um, it's getting some attention now and, and people have really, really strong opinions about it, but when you sit back and think about how business is actually done in law firms, it's not as terrifying as, as people make it out to be.

Yeah. Um, you know, another interesting dynamic that, um, ABSs bring to the table is we are now in a talent war You know, outside of the practice, right? So firms are-- I, I read these job recs all the time and they're quite entertaining, uh, if I'm being honest, how misaligned they are with the market. Most of them, not all, but I'd say probably nine out of 10 that I read going, "You're never gonna fill this job," um, [00:42:00] because of all the competition, right?

You're competing with Silicon Valley. You want AI expertise, you want a JD, uh, you want a deep knowledge of legal technology systems, and you want to pay 200K a year with no stock options, and you're competing with the likes of Feta, uh, Meta, Facebook or, um, Amazon, you know, Apple. Like it, it, um, ABSs would allow you to offer options, which I think is going to be, you know, that's something that the tech community is accustomed to.

And, um, yeah, I'm curious like what your thoughts are on that. Will, will, will, will the ABA, ABS structure make law firms more competitive for that non-legal talent? I think it will. I mean, every, every other industry you can offer equity to, to people that aren't, you know, licensed in that particular profession.

And so [00:43:00] there's been plenty of ABS firms that have come in, um, that have been in existence, traditional law firms for 20 years, and the owner of the firm said, "You know what? I've had a loyal paralegal with me that's helped me build this business, and I'm not able to offer him or her equity in the firm until the Supreme Court changes the rules.

And so I want to make them a part owner, not only to value what they did to help me build this firm, but to make sure they don't get recruited by that other big firm that's gonna offer them way more money." Same thing with like a chief marketing officer, same thing with a CFO. We've seen a lot of firms come in and say, "I don't want to lose this person.

They are helping me grow the firm. I want them to be part of our long-term plan because they're smart, they're a valued employee. I want them to be a business owner with me." And I think that's a really good, basic, straightforward reason That someone should, should run an, an ABS and, and have a license. I mean, it doesn't have to be-- It's not always about access to justice.

Access to justice is really important. There were a number of, of other [00:44:00] reasons why the Supreme Court started the program, including promoting diversity in the legal profession, including multidisciplinary services, including, you know, private capital to help the law firm grow. But at a very basic level, you know, why, why, why shouldn't you let your wife have a portion of the firm if you're a lawyer or, or, or your husband, right?

For succession planning purposes. 'Cause if something happens to you and there's no one there and no one owns it, what's gonna happen to your clients? Yeah. You know, and there's, there is, um, very-- a, a very real dynamic in big law, especially around, um, hierarchy in terms of the, the practice and then the non-lawyer business professionals that has always been unhealthy.

But, you know, I think that in an era where these people become critical to the delivery of legal work, legal engineers are gonna be every bit as im-important as attorneys. Uh, and anybody who doesn't think that's true isn't paying attention. [00:45:00] That is absolutely gonna happen. It's happening already. And how do you, how do you incentivize?

Um, how do you empower? How do you retain? Like, the ownership limitations around traditional law firms and the ABA rules really- Interesting ... you know, uh, create obstacles and friction towards that. And, you know, I think the timing is really interesting with, you know, ABSes in, in Arizona as we are starting to enter this tech transformation because law firms have the opportunity to actually build enterprise value now, right?

With systems and, and, and go-to-market offerings that aren't just tied to people's hours. Um, so, like, owning equity in a law firm other than your, your payout at the end of the year, not a ton of long-term value, and that's changing. So ABSes are starting to make a lot more sense for all those reasons.

Absolutely. And, and a-another thing I like to sort of joke about is, you know, if you're an equity [00:46:00] partner at a traditional law firm, what is that equity worth? Well, it, it's worth A per- a percentage of the profits, right? But there's no value attached to it. It's attached to, like, a, a dollar of equity means dollar of profit typically.

Whereas- And really- ... at other organizations, including ABSs and MSOs and, and, and, like, publicly traded companies, like, their equity means something. And, and, and if there's ever a change of control or an event or, or recapitalization, there's a multiple attached to that equity that's gonna be more than one, right?

That's a really good thing when you're, where you're building value in an organization together with a group of people. It's incredible how much that motivates people to be aligned and, and to grow the institution. And, and to make a comment about this, you know, lawyer/non-lawyer concept, we like to throw that word around, non-lawyer.

We're the only profession that does that. Like, you wouldn't, you wouldn't call someone a non-dentist or, like, a non-pilot, [00:47:00] right? But lawyers, we just think, like, they're-- it's very binary. Like, it's either a-- you're either a lawyer or you're not. You're either smart or you're not. Um, I work with a lot of non-lawyers that are super smart, that are highly educated, that have fiduciary duties to their clients, that are sophisticated, that are really, really good businesspeople.

So this notion that a non-lawyer is inferior to an attorney is, is so off base. Um, I love the non-lawyers that I work with. They're, they're awesome businesspeople. They're a lot smarter than me when, when running a P&L on a balance sheet and, um, I'm super grateful to have them as business partners. Yeah, you know, I'm, I'm kind of a legal industry analyst.

I'm not a lawyer, uh- Yeah ... but I've been in the space for 20 years. You know, I have an MBA. I've been a, I've been a, uh- An entrepreneur for 32 years and yeah, I'm, you know, I'll h-hold my own in how to run a business, right? 'Cause I've been doing it for a really long time. But I've been challenged before [00:48:00] like, "Oh, are you a lawyer?

No? Oh, okay." Yeah, you know, maybe m-my credibility went down on the index. I'm like, you don't have to be a lawyer to understand the business and the challenges and where we're going in the tech. But, um, we're almost out of time, but I wanna ask you one question because I think this is the most important question that we're gonna, um, talk about today.

What is the future with ABSs? Because, you know, there was a sandbox in Utah that I think kinda wrapped up. Um, there's been, you know, I know, is it DC, Puerto Rico? The-- I hear rumblings about other kinda upstart ABS, um, jurisdictions, but like where's this going? Is this, uh, gonna be a one-off or do you see this getting traction?

It's hard to say. Uh, what I can share about Arizona is it's a thriving program. We're up to over 160 applicants and the committee meets on a monthly basis and we have at least five new applicants every month and there's a backlog of like [00:49:00] 70 applicants. So the interest is still there, the growth is there.

It's gonna continue to do great things in Arizona. I think there's a lot of people outside of Arizona that are still waiting and seeing how the program works and I think we need to do a better job of celebrating how well it's going. You can talk about how many applicants th-th-there have been and how many clients we've helped, but think about the, the economic impact to our state in having 160 new businesses show up and creating jobs and renting office space and investing in the community and, and being involved like because of, because of the ABS program.

Like y-y-you know, if I, if you could run for mayor and open up a grocery store and they're doing a ribbon cutting, right? We've done that like over 160 times. All the money that's flowing into Arizona benefiting the community, like it's a beautiful thing and I think if more states looked at it a little bit differently and said, "Okay, [00:50:00] it's not as dangerous as we think.

It's working in Arizona. The firms are having a tremendous amount of, of success Why not implement it in, in a Tennessee where they've got a, a, you know, exploratory task force or in Washington where they've got a pilot program? Um, it's gonna take, it's gonna take forward-thinking legal minds and pioneers to, to really help push that forward.

Um, there's still gonna be critics. I don't think it's gonna happen in every state in, in my lifetime. I really don't. Um, but I think the future, you know, a- as, as people think about succession planning and how to invest in their firm and what they're gonna do to remain competitive, I think more states are gonna, are gonna be interested in, in adopting some form of non-lawyer ownership.

Yeah. I agree with you, and I, I think that the, um, you know, I think we, we both talked to the folks at Stanford, um, Natalie N- Noton he, he, is here [00:51:00] in St. Louis now, um, and has kinda shared some of the Um, research that, that they've been, um, gathering, and it's, it's sounds largely pos-positive. I think it's still, that research is still underway, but, um, early signs are good.

So, so I'm hopeful because I really do think that for this industry to come out of the other side of this transformation successful, we have to reevaluate everything. We have to reevaluate, you know, the business structure, the cash basis partnership. We gotta evaluate the billable hour, internal firm compensation, client engagement, um, consensus-driven decision-making.

All of these things are holding the industry back from two point O, and we're going there one way or another. So, um, yeah, I don't know if you have any final thoughts on that. Yeah. I think, I think clients are, may be what, what really [00:52:00] turbo boosts that change because they, they have AI tools as well, and they're looking around thinking, "Why am I paying you, why am I paying you an hourly rate that has a comma in it for you to do this?

And everything else I buy in my life, you know, has a price on it." Like, I know what, I know what a gallon of milk costs. Like, I know what a vehicle costs. I know what a home costs. But then I go to the, my lawyer's office and it's like I have no idea and, and he or she doesn't know either, and then I get a surprise bill.

Like, it's g- things are gonna come to a head, and I think AI- Interesting ... a-and people's y- gravitation towards flat fee and value-based billing like we're doing at Aprio, um, I think that's gonna speed up those decisions. But all really good points. Um, you're, you're gonna continue to see disruption and change as a result of ABS and MSO and, and, um, private investment into law firms and, um, I'm here for the ride.

Yeah. That's awesome. Um, before we go, how do people find out more about Aprio Law [00:53:00] or, or you as an individual? Yeah. So apriolegal.com is our website. You can also go to aprio.com, which is the greater organization's website. Uh, we're based in Scottsdale. We've got, we've got offices all over the place. Uh, we've got accounting, non-legal professionals all over the country.

We're in all over the world. You know, we went from being a 20-person staff to now having, you know, over 3,000 employees and, and working at an organization that's a top 20 accounting firm. So, um, we're everywhere. Just look for the orange. Awesome. All right, we're pulling for you. Um, Andy, thanks so much for joining me today.

All right. Appreciate it, Ted. Take care. All righty. Thanks for listening to Legal Innovation Spotlight. If you found value in this chat, hit the subscribe button to be notified when we release new episodes. We'd also really appreciate it if you could take a moment to rate us and leave us a review wherever you're listening right now.

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