[00:00:00] Greta, thanks for joining me this morning. Thank you for having me, Ted. Really happy to be chatting today. Yeah. So, um, I saw the 2026 Citi Hildebrand, uh, client advisory, I don't know, several months ago, and I-- there was so much information in there, and, um, I wasn't familiar with it. It's been around for a little while, and I keep my ear to the ground. So I think there's probably some audience members who don't have visibility as well, and I thought it'd be a good idea to talk a little bit about all the amazing insights that you, uh- that you documented in this report. Thank you. Yeah. Very happy to, to chat. Good. Uh, before we jump into it, why don't you just tell everybody a little bit about who you are, what you do, and where you do it? Sure. Sure, sure. Well, I'm Greta Rusino. I'm the managing director and head of advisory services [00:01:00] in the law firm group at, uh, Citi Wealth at Work. Um, I'm part of a business that's over 55 years old at this stage. We're the, uh, primary lender to law firms, uh, in this, uh, industry and, um, predominantly large law firms. And we offer the full suite of, uh, banking and, um, investment management needs, uh, both at the institutional level and for the partners and associates of those firms. And as we're making, uh, lending decisions and, and, uh, making decisions about how to develop our products and services, we spend a good deal of time analyzing the industry, tracking the, uh, trends affecting this industry. And for decades we've been amassing very detailed data about the, uh, financial performance of, uh, firms, both in the US as [00:02:00] well as, uh, the UK. We run a series of surveys each year. Uh, we are then in front of roughly 130 law firms, uh, some twice a year, uh, conducting peer reviews where we are breaking down their businesses, uh, against the firms they perceive as their competitors in the market. And we, uh, show them, uh, what they do well and more importantly, where there might be some gaps. And a typical day for us, honestly, is just, uh, being in front of the managing partner, chair, CFO, uh, executive director, finance committees, management committees of the major law firms, uh, in this, uh, market, talking to them about what is keeping them up at night and where they think this industry is going. So how much overlap is, is there between what, what, what you guys do and the, the information you compile and, and the AM Law list? [00:03:00] Oh, well, we, uh, uh, w- Collecting data from, uh, the vast majority of the AM Law 200 firms. Uh, and, you know, firms voluntarily submit their data to us and, uh, so there would be a g- a good deal of overlap between, uh, the t- the two, uh, surveys, for sure. Yeah, I think that, um... So yeah, I, I have visibility to the AM Law list. Y- you go into more analysis, um, at least from the, what I've seen in the AM Law data. It's very data intensive. Mm-hmm. And they have all sorts of pro- ratios and profitability and revenue metrics. But y- you actually kinda talk about, um, get into some detail and which I think is gonna be really interesting to the audience here. You know, one of the items that jumped out at me [00:04:00] was, you know, we're undergoing great change in the industry in, in legal, and there's a lot of fear, uncertainty, and doubt about the future. Um, and I think rightly so. It's we're undergoing a tech transformation unlike anything that's ever happened in this industry, uh, I think ever. Um, you know, there's been a couple of big kinda technology shifts. Email was a big one, electronic research, but this is actually how the work gets delivered is, is being fundamentally Um, changed. Uh, but law firms are doing great. So, you know, in your report, it l- it sounds like revenue grew in low double digits, uh, through the ni- uh, first nine months of 2025. Demand only grew around 2%, but, like, ta- talk a little bit about just kind of broad [00:05:00] brushstrokes, um, what 2025 looked like. Sure. So, uh, just as an update on, on the full year '25 results, I mean, we ended the year with over 12% revenue growth as an industry average. We saw demand, uh, pick up as it had been through the third quarter when we were writing that report. It continued to gain momentum through year-end as we saw a pick-up in M&A activity particularly. We ended the year with 2.5% demand growth, so that was a nice above average result. And we've just released first quarter '26 results this week, and once again, we see low double-digit revenue growth on average. Uh, and we've seen a nice pick-up in demand. It's, it's above 3% for at least the first quarter. Mindful that it's off of a lower base, uh, in Q1 '25, but still, I mean, that is a nice, nice solid start to the year. [00:06:00] So I think it's once again demonstrating how, uh, resilient this industry actually is. Yeah, I, I, I mean, it's, it's hard to argue about, you know, that, that the industry has not, is not resilient if there's, um, there is continued demand. I mean, really, every year since the Great Recession, we've seen im- you know, improved performance year over year. So, uh, it, it would be hard to argue that the f- the current model isn't resilient. It's extremely resilient. Mm-hmm. Um, you know, we're-- there's question marks on how the current model is going to hold up with, you know, kind of post-transformation, right? Like, there's a lot of talk about the, the hourly, the billable hour. There's been a lot of talk for the last 15 years about the billable hour, maybe longer. Longer. Uh. Yep. But it's, um, [00:07:00] it, I, I think it's gonna continue to have its place even post-transformation. There's just some work that is unpredictable in nature or just aligns well with the, the billable hour model. Um, but I also think there's gonna be some change, um, especially kinda in the blocking and tackling. I don't know, how much forward-looking do you do in, in the report versus kinda in the rearview mirror? Oh, well, I think the, the client advisory is almost entirely forward-looking. We put maybe one page of, of current data at the front of the report, and the rest of it is really drawn from our conversations with law firm leaders and a survey that we conduct at Citi in the middle of the year, where we typically are asking, uh, their, uh, sentiment around, uh, where the opportunities are, where the challenges are in the short term and in the longer term. And we certainly, [00:08:00] uh, took a close look at how they're thinking about AI. And I would say that, you know, and I'm happy to talk about what the, um, hard data showed us, uh, in that report, but I'd also just signal that, uh, there's probably been a, a significant sea change in the mindset of law firm leaders over the last three to six months and, and happy to talk about that as well. One thing I would just point out though is that we, you know, it's in- it's good to look at the industry averages and say it's a resilient industry. I think it's also important to, um, uh, take into account that there is dispersion behind those industry averages. Uh, that's not a new trend. That's been going on for a very long time now, where, um, where the pie is growing on average historically about 2% a year. I'm talking about overall billable hours logged. There are firms who are, uh, increasing demand each year, and there's always, uh, typically a segment, or typically there [00:09:00] is a segment who are, uh, seeing their demand decline. And if, if you ever wonder why do we see such an an aggressive lateral market, it's because, uh, firms are, are understanding that where the pie is only growing roughly 2% a, a year, in order to outperform your competitors, you have to take some of that pie from them. Um, and so I think, I think that is really an important trend. Uh, I think we're gonna continue to see that consolidation, and the primary reason I say that is that the technology, uh, expense that firms are going to be incurring is gonna require a certain amount of scale to be able to, uh, uh, pay for that technol- technology spend, to pay for the scale that's going to be needed, uh, to, uh, to do this well. So I, I just flag that at this stage as probably one of the [00:10:00] important, um, measures to be, uh, looking at as, as we see AI coming more and more into the picture. The other thing I'd also just say is, I mean, maybe I'm just, uh, you know, I've just been around too long, but I've been in this industry for over 35 years. My first role was building a, uh, a contract management system. Uh, and, and then I went on to develop a precedent system at Mallesons in the mid-'90s. I mean, I, I, uh, I think law firms have always done a good job of adapting to technological change. I, I, I agree with you that this is, uh, uh, perhaps unprecedented in its scale, but I am completely optimistic that this industry will adapt just the way that they have done every other, um, moment on the technology continuum. Yeah. So I might have a slightly different perspective being on the vendor side. [00:11:00] So, um, eh, I, I would say that- Not all, not all of law firms' reputation of being laggards is their own fault. Um, a- and they, th- they are, uh- Right ... they are, but it's not-- There are good reasons for some of it. And so there has not really been a transformational technology li- like AI that has really... I mean, think about how, how lawyers use tech today. You know, it's again, electronic research, electronic communication, document automation. It's nothing like absolutely foundationally changes the way that they work. Technology has not historically, um, changed that basic level of work product delivery until now, right? Now we are entering into an era where the table stakes have changed. [00:12:00] And you know what I'm seeing? Um, I don't know if you're seeing the same thing. I, I, I have heard the term a K-shaped trajectory, and it has been my observation as well. So InfoDash, we do business with about, uh, 30% of the Am Law, a little over, um, of the Am Law 200. So we have over 60 Am Law firms as clients, and we have many more. We're growing very quickly, so we have many more in our sales cycle. So I have a really good current cross-sectional view of what is happening in-- with the IT infrastructure in Big Law, and I am seeing this K-shaped trajectory as well. And what I mean by that is there are firms who are doubling down into this transformation and, like, really making the investments, and there are also A non-trivial number who are sitting on their hands or moving really slowly and, um, I'm worried about that because we are 100% dependent on law firms [00:13:00] for, to pay the bills. Um, it worries me when I s- when I see, uh, firms limping in to this transformation because I think what's gonna happen, even though the numbers that your, your report and the AM Law Report are, look really, really good, this feels like a moment in time where things are gonna swing slowly then suddenly. Mm-hmm. And the impetus for that is going to be as, as clients become more tech-enabled in-house and then, you know, we have a, a, a almost 60 AI native firms who have made their way into the marketplace. So I, I think it's gonna happen kind of swiftly and I, I really want law firms to be prepared for this and not get too comfortable because the numbers look good today. I, do you see it the same way? So, so Ted, I think a key to, to that is that there are many different stripes of the law firm business model within the AM Law 200, [00:14:00] and there are many different levels of m- uh, profit margins within those firms. And so I would say that firms who are, uh, heavily reliant on, um, commodity type work and are operating on lower margins are going to be under a lot more pressure faster than the firms who are being, um, uh, asked to do the bet the company high stakes work. And I would say that where I'm seeing firms maybe watching what's occurring, um, they are still watching very carefully and they probably have the scale to jump in and make the investment as and when they need to do it. So I agree that there is a divergence in how firms might be viewing this, just as I see that there is a divergence in the performance of [00:15:00] firms as well. I do think that if you are a firm that is smaller and, um, uh, probably has lower margins, you need to be looking really carefully at whether you have the scale to be able to spend on not just the technology, but the whole organizational infrastructure that I think firms are going to have to build around the implementation of AI to make it work. Um, so th- That, that's where I sit on it. I, I'm, I'm, I'm not worried about certain firms perhaps, uh, uh, coming to this slower because a number of them, as I say, are highly profitable and are watching it carefully. And I have seen just in the last three to six months a- an incredible shift in the conversations I've been having with those firms. I, I would say that this time last year there was a lot of kicking the tires, [00:16:00] a lot around, look, there's, there's, there's just a ton of, uh, legal tech vendors flooding the market. We feel compelled to test all of them, only to then discover that they're at varying levels of market maturity. And that was the mindset, that was the sentiment around this time last year, to now I think a, a, a pretty, uh, f- uh, strong understanding that, look, we have some really mature, um, products in the market, and they're good, and we should be piloting them, and we are piloting them. And s- so I, I, I have seen that pretty significant shift, even among the firms who might have been a bit slower to it six months ago. Interesting. So, um, what, what... I, I think where I see a, um, I'll call it concern on, on my side, is so much of the change that [00:17:00] needs to happen, it's not the tech. Agree. Yeah. I wrote a book on it. Yeah. And... Agree. Uh, it's, it, it is, a lot of it is cultural. Like you're asking, uh, you know, so there's process engineering work, change management, uh, work. There's, um, you know, legal engineering work. Yes. There's, you know, changes to the client engagement model, the internal firm compensation model. Like everything that big law is built on- Mm-hmm needs a, needs to be adjusted in a scenario where you have a tech-enabled legal service delivery practice, right? Right. And that takes time. So like, if, if there is a, if there is a sudden, um- surge in, let, let's say AI native firms who don't carry that baggage. Like even- Mm-hmm ... the capital structure of law firms, you know, they largely in the AM Law, if I had to guess, 95% are operate on a cash [00:18:00] basis. Um, you know, th- their partnerships, and they're funded primarily with partner capital. Mm-hmm. Um, right? Because at least here in the US, we have ABA Model Rule 5-4, and we can't have non-legal ownership. So you have some back doors with MSOs, but by and large it's partner capital that funds, uh, fuels operation. We're now entering into a phase where there's gonna need to be capital investment in order to create that technology layer that has historically been pretty thin. Yep. Right? Um, it's going to, it, it's going to be much thicker than it is today. So that's the, the part that concerns me is like, you know, the capital structure, the cultural change, you know, the some of the things that are really in the, the bedrock upon which law firms are built, like the, the, the billable hour and how that drives how, how lawyers are judged, how they're promoted, how they're compensated- Mm-hmm um, how they're recognized for the partner track. Like all of that we have to [00:19:00] like reevaluate. So that's my, that's why I'm worried that if, if firms stay on the sidelines or they move too slowly, um, without... It, it's those foundational elements, they take time to They take time to adjust Mm-hmm. Yeah. Look, I mean, there's a lot in that, right? So, so, uh, I would say, again, we're gonna continue to see consolidation in this market. You know, your point about the investment that's going to be needed. You know, if you're an Am Law 50 firm, y- you would have enough revenue to cover the cost of the, uh, expense that is coming your way. If you're in the second hundred or lo- or, um, below the second hundred, you're probably going to have some concerns around whether you have the, uh, the revenue base to cover that expense pressure, which is why I said at the outset that I think we can, uh, continue to see, uh, [00:20:00] consolidat- further consolidation occurring in this industry. Yeah, so- I think absolutely that expense, uh, uh, issue will be a part of it. I would also just say, I mean, we're already starting to see the emergence of, uh, more data scientists, larger IT teams coming into the mix. As someone who comes from a pretty strong knowledge management background, I think there's going to be a greater role for, uh, the CKO. Chief Innovation Officers are coming into the mix. I think firms understand that you are going to have to, uh, reshape not just your, uh, professional staff leverage model, but probably also the lawyer leverage model as well. Who are the other fee earners who are going to come into the mix? And as for the, the billable hour model- We have been surveying this for years, and we have never seen alternative fee arrangements go above a quarter, less than a quarter. The biggest [00:21:00] number I saw was la- in last year's survey, less than a quarter of overall revenue has come from alternative fee arrangements. And honestly, I mean, if firms are able to show their clients, uh, a value-based model, um, that unlocks the, the, the potential that goes way beyond the finite measure of an hour. A- and I would say that it's not the firms that have been stopping this. We hear time and again that law firms have been coming up with creative pricing models for clients for years, but invariably when they present it to the client, the client says, "Well, I can't, uh, compare your proposal to the other five I've received from other firms. Can you just give me a, a deeper discount to your hourly rate?" So it's, it's not the, the firms' unwillingness. The firms, I think, have been very willing to, uh, reshape the, the billing model. So, uh, I just think, you know, the [00:22:00] combination of, uh, building out their organizational structure, rethinking the billing model, uh, as well as sort of understanding that we, we are gonna see more consolidation in this industry to be able to cope with the cost are, are all trends coming our way. Yeah. So, uh, I completely agree with you on the consolidation piece. Uh, big law is so ripe for consolidation. I mean, if you add up, I don't have this year's, uh, Am Law numbers, but if you add up all Am Law 200 firms from 2025- Mm-hmm ... you're at about $190 billion. Mm-hmm. That's like three big four firms, right? Yeah. I think the combined revenue of Um, Deloitte, EY, KPMG, and PwC is about 240 billion. Mm-hmm. Four firms, 240 billion. 200 firms, 180 billion in a very closely adjacent industry. The accounting is the-- [00:23:00] I, I don't know a closer one, right? Um- Mm-hmm. So, uh, you know, that tells me that we're, we're very fragmented, um, and I have theories on why that is, which we can get into. But, um, I completely agree that there is a massive opportunity given the current s- state and the, the current fragmentation and the dynamic of there's going to need to be capital investment made as we tech enable our practice. So, um- Mm-hmm ... I think we're, we're aligned there. Um, I don't know when or how. I-- It feels like it might be a little messy, um, in terms of, you know, one, one thing that has driven a lot of M&A in, um, in legal is underperformance, right? We've seen firms that have, um, struggled that get snapped up, um, at, you know... This isn't always the case, but I've seen it several times [00:24:00] I'm wondering if, you know, that's going to be the, the catalyst is we get into a scenario where either there's capital constraints or there's just, um, technological, technology maturity, uh, constraints that create, uh, fire sales. Um, I don't know. Do you see this being an orderly consolidation story or less so? Well, I, I, I don't think it's a new story. I think we've been seeing consolidation in this market for a really long time, and it's been driven by that dispersion behind the average demand growth numbers we report to the industry. So, um, you know, to your point about the size of the AMLAW 200, we've seen now over the course of at least the last decade, I'm sure it's gone on longer if I were to go and measure it, that, um, we've seen, uh, the AMLAW 50, uh, grow at a faster pace than the second [00:25:00] 50, uh, who have grown at a faster pace than the second 100. And if I were to break it apart, the AMLAW 50, I've seen the AMLAW 25 take more market share, uh, at the expense of the second 25. So that, that, um, market consolidation has already oc- ha- been occurring for quite some time. Not to the degree that you've see- you know, you cite in the accounting industry, but certainly, um, that has been occurring. And then I think w- w- it's one thing for firms to, uh, merge or to, uh, make a big acquisition. That, of course, enables them to, uh, bolt on, um, uh, demand as well as revenue growth. But then the big question is, is it profitable revenue growth? You know, partners are portable Their books of business, to some degree it's, it's debatable how much they are actually portable because we see [00:26:00] such low rates of success in, in, uh, lateral, uh, movement. But, but at the end of the day, um, I think, you know, the biggest challenge for, for firms will be how will they, uh, capture market share, um, in a way that outpaces their peers, that enables them to attract, uh, the best talent, the best clients as, and as a result of that, continue to outperform, and in doing that, uh, enable them to, uh, invest more heavily in tech and, and continue to differentiate themselves in the market. So I think that market consolidation has already been occurring, and I think, you know, as the report indicates, we're anticipating that that will only accelerate as we see greater expense pressure as a result of AI in particular. Yeah. And, you know, a maybe less talked about driver of the current state [00:27:00] in terms of the, the fragmentation is, um, in my opinion, just the bespoke nature of legal work. Mm. Right? Exactly. Yeah. The way that firms deliver legal work, I've said this many times, my listeners have heard me. Uh, my wife and I own, uh, five gyms here in St. Louis and, uh- Okay ... we, we moved one, so we've had to sign six commercial leases and, you know, our l- our law firm partners Uh, y- you know, one would be out of the office and redline the other one's, um, edits. You know, it's like they it's just very bespoke. Right. Uh, you know, there's just tastes and preferences, and they've, they've learned different lesson, hard lessons along their journey and incorporate that in how they deliver legal work. Right. Which is, which is good, right? That's what you're- Right ... paying them for. But- Right ... but there's variation, and I think that as we get into a, a tech-enabled world, there's gonna have to be less variation, and [00:28:00] there's gonna have to be... Y- you can't scale, it's very difficult to scale bespoke processes with technology. Correct. You need- Correct ... some standardization, and that, and that lends itself well to consolidation, I think. Well, yes, but it, it assumes that the standardization is appropriate. And again, like, just as you've got a rainbow of different business models within the AM Law 200, you also have a wide, uh, variation in the sort of legal services that any firm might offer. So, you know, you might have a whole layer of the, the, uh, high volume commodity type work that is screaming for standardization is obviously the first big opportunity for, for tech in general. But then you, uh, will have at the, at the very top, um, the, the art of the deal, the, the, the highly strategic advisory work that, you know, if any CEO is, is, um, [00:29:00] worried about the future of their company, they are going to want the best lawyer, uh, to advise them. They're not interested in having 10,000 documents churned through a machine. They will probably pay any price to have the best of the best advise them. And then somewhere in the middle you have a, a mix of, of work that can probably be done more efficiently, but at the end of the day, you still want the, the, the touch of a senior, uh, lawyer to come in, as you say, and redline here and there to, to make sure that, that, um, the, the work is appropriate, um, f- in the best interest of the client for whether it's a, a case or it's a transaction. So I, I, I do think that, um, the implementation of, of technology is gonna knock out a whole lot of the higher volume, lower value work, but in the process, it's going to free up lawyers to do much more [00:30:00] interesting work, uh, more challenging work than before. And I think the other thing we've gotta bear in mind is that, you know, so long as the world keeps evolving- and becomes more complex and new industries are, are developed, we're going to need regulatory frameworks. We're going to have people fighting each other in court. We're going to have businesses wanting to do deals. There is always going to be a need, um, for the higher end strategic advisory work in addition to this whole chunk of, of work that I think we've been talking a lot about and, and how technology's going to, uh, be able to deliver that more efficiently. Yeah. You know what's interesting? Uh, yeah, I completely agree. So nobody owns the terms bet the company and operate the company work, right? But I, I think we all have a general sense of what that means. Right. Um, the ratios that I've seen are, you know, [00:31:00] 15 to 20% of work in big law is bet the company. Mm-hmm. 80% is operate the company. Mm-hmm. And what I find really interesting is how Inside legal teams- Mm-hmm ... distribute that operate the company work. Yeah. So we've had A- ALSPs for 20 years. Yes. Yet they, they only have mid-single digit percentage of the market, even though- Oh ... they're a much more effective delivery mechanism for that operate, much of that operate the company work. Right. Um, but I think it's a matter of convenience and, um, maybe, I don't know if there's been as much pressure as I think there maybe is now or is coming from boards and management to reduce outside legal spend. I know if you talk to inside legal teams, and I have them on the podcast all the time, and they're like, cost matters. But y- you look at how they're, w- the, the channels that they're [00:32:00] using to deliver the work. Mm-hmm. And it's not, they're not optimized. So I, I don't know. I don't know. That's kind of a contraindicator to, yeah, the, these AI native firms and, you know, AI enabled ALSPs are going to take a big chunk of the operate the company work because why aren't they doing it today? I mean, this is probably making me sound like a dinosaur, but in the late '90s, I was consulting to corporate law departments while I was at PWC in our law firm law department consulting group, and we were having the same conversations then. That is 30 years ago. Yeah. So, and, and, and corporate, you know, outside counsel spend and, and the size and the cost structure of, uh, corporate law departments has been cyclical as well. I mean, there've been eras where it was all about outsourcing as much as possible, and therefore let's [00:33:00] try to do it at a, at a, um, as efficient a cost as we could. There've been periods where, uh, law departments have bulked up, have grown their in-house law departments and more of the work has come inside. So it does go in cycles. I will say, I mean, I was, uh, struck by a, by an outside coun- council panel I heard recently talking about whether they would be reducing their, uh, outside council budget as a result of AI. And one particular speaker said, "Well, not necessarily. We're gonna want more for that budget. If we were spending 5 million with a firm last year and we were, uh, getting items one, two, and three on our long list of, of priorities, now we're just going to ask them, 'Well, what more can you do for us? Can we get down to item number seven?'" And when I heard that, I thought, "Right. Well, uh, if that's the case, [00:34:00] any law firm, uh, has the opportunity to actually become closer to their clients by delivering more, building more loyalty in the process, and probably ending up with more wallet share in, in, uh, the process." Yeah, that makes a lot of sense to me. Um- I hear, I hear conflicting Uh, data points on this topic and, um, you know, uh, I had a inside lawyer from, uh, Google on last week. Okay. And, you know, she-- They're expect- Now they're a technology company, but- Yeah ... their ex- their expectation is that they will reduce outside legal spend. Um, I would argue that that list that you talked about where they're getting three today and they wanna get to seven- Yeah ... that list, that list is going to grow to 100 as the regulatory environment- Correct ... becomes so much more complex as we, you know, as we go through this [00:35:00] massive reshaping of the economy. I think it's inevitable. I, I, uh, completely agree with you. I think that people need lawyers in good times and bad, and as the world-- So long as the world keeps spinning, uh, it will become more complex and we'll see, uh, uh, new area, new practice areas, new industries emerge, and with that, they will need lawyers by their side to help them evolve. Yep. Uh, um, I think Jevons paradox is real, and, uh, we also have-- Even if demand were to stay somewhat static, there's so much unmet need. I mean, I know I've been a business owner for 32 years. Like, I know how much of, how much more I could send to my legal partners if resources weren't so constrained and y- price was so, such a high bar. There, there'd be [00:36:00] much more help that I would get, um, but, y- you know, um, circumstances dictate otherwise. Well, I wanted, I wanted to hit you up on a couple of things here that I thought were real interesting. So- Sure ... um, y- you have a, uh, you had a number here that law firms, it, it looks like, if I'm interpreting it correctly, spend a little over about 2.4% of revenue on tech. Mm-hmm. Right? And that, that lines up with my general ex- anecdotal experience. Um, to put that in perspective, financial services where you live, I spent 10 years at Bank of America. I know that world pretty well. Um, they spend High single, low double digits on tech High. Yeah And I f-, you know, um, accounting spends about twice as much as legal, so they're like four to six or four to five. These numbers, depending on where you get [00:37:00] them, there's a, there's a little bit of variation. But I'm wondering, and it, it, you had a number that I thought was so interesting. It was like .1% of revenue was- Right ... on gen AI. Right. Um, h-how do you, d-do you... That seems incredibly low to me. Did, does that strike you the same way? Oh, absolutely. I mean, I, I would say, though, it's probably pretty stale data. Uh, and I'll, I'll say that openly because of, of how fast things are moving at the moment. So, uh, I'll be honest, I mean, even the 2.4% number was low to me. I had expected it would've been more around the 4% mark, so, uh, I, I was struck by that anyway. But I think it's just important to bear in mind that a lot has happened in terms of, uh, law firm thinking on AI, and in fact, the development of the tools to enable them to think about investing. As I say, I think the last three to six months has [00:38:00] just been a, a tremendous shift. Uh, so that data, of course, was based on full year '24. Uh, I'm in the process of collecting what happened in full year '25, but I suspect that even that will be stale because of the nature of how fast things have been moving just, uh, in the, in the more recent timeframe. Um, so yeah, I think that 0.11% was, was obviously a lowball number. Uh, we'll be absolutely anticipating an increase in that, and I think the, the, the larger point is that whatever I get for full year '25 is still only going to be scratching the surface. I, I think we will absolutely be seeing, um, a, a greater increase. And as you indicated earlier, it's not just about the actual tech spend, uh, it's also around the organizational structure to, uh, leverage that tech spend as well, whether it be more data scientists, more legal [00:39:00] engineers, more tech staff in general, as well as the knowledge management professional services lawyers coming into, into the mix as well. So, uh, I, I do- anticipate that 0.11% growing significantly. Yeah, I, I don't know what the ratio is. If I had to just do-- throw out a number- Yeah ... I would say I think the investment required is gonna be two to one, um, with tech being o- on the lower end of that in terms of all the things that, that you just talked about, the change management, um- Mm the, uh, you know, the legal engineers. Um, you're gonna need product managers, you're gonna need data scientists. Like, there's gonna be a ton of cleanup. Law firm data hygiene is not the greatest, and I'm being kind. Um- Yeah ... it's not, it's just not been a area of focus for, for large law firms [00:40:00] historically. And, you know, there's been a lot of, to your point earlier, consolidation in, in big law where, you know, the DMS is, that's kind of the heart and soul, that's where all the work product lives. Yep. There's been, you know, every ti- any time you buy a new, uh, buy a law firm and incorporate whatever mess they had into your mess of a DMS, it's like there's gonna be a lot of, um, curation and data hygiene that's gonna have to happen before we can really leverage tech to its full capacity, I think. Sure. Sure. But then also it's, it's going to be the, um, developing of the, of the agents, and, and that'll have to be constantly, uh, updated. It's the training of the associates, training of, of any lawyer in the firm on how to leverage the, uh, the AI. Um, I mean, it's, there's, there, there are a ton of, of, uh, points I think of, of expense that will [00:41:00] come into the, uh, the, uh, the bottom line number that we see when we survey firms on, uh, their, uh, AI spend. What are your thoughts on, um, I, I beat up on the, the partnership mo- model, uh- Yeah ... quite a bit here. I don't think it's the future. I think that- There will be a liberalization movement similar to what we've seen in Australia and the UK where, you know, the future, the future entity or operating model is going to be a ABS C-corp. Mm-hmm. Um, and w- we're still very early in, in that, right? We really-- I think Arizona's the only active state. I think the Utah sandbox has, has sunset. So, um, yeah, it seems to me... And, and, you know, it's, it's really only in professional services where you can even operate on a cash basis over 25 million. Like the IRS rules [00:42:00] require you to operate on a accrual ba- basis unless you're a professional services. They have a carve-out. W- and the carve-out makes sense, right? If you're just delivering services and you bill $10 million at the end of the year that you haven't received from your clients, paying tax on that money can create a tremendous amount of financial pressure. So it makes sense why they operate that way. But I'm wondering how well aligned to the future where we do have to make investments in capital expense, you know, that's amortized over several years. Mm-hmm. I don't know. Do you have any thoughts on what, what, uh, the current-- how well the current model is aligned to where we ultimately need to go? Well, I, I, I mean, again, I think it, it, uh, bears looking at the wide- A variation in law firms [00:43:00] within the Am Law 200 and outside of the Am Law 200. So I think we've, we've discussed earlier about the, the likely consolidation that we'll see, uh, within the Am Law 200 and beyond to enable firms to have enough scale to, uh, be able to pay for, um, their technology. I think there will also be, and we're already seeing, greater interest on the part of private equity shops to invest in more firms and, uh, certainly have, have, uh, been a part of many discussions, uh, with, uh, uh, people in the industry who are looking to, uh, assist firms on spinning off MSOs, uh, which would then enable them to take, uh, private equity investment and oth- other, uh, uh, outside, uh, capital investment into the model. Uh, um, I think that's more likely to touch the smaller, uh, law firm end of the [00:44:00] market before we see it, uh, as a, as a compelling option for, um, larger firms at this stage, but I'm talking about early stages here. I also think that, yes, we've seen, uh, the ability to s- uh, spin out an alternative business structure, both in the UK and in Australia, but some of it's been successful, and frankly, some of it hasn't. I mean, there've been firms who listed on the ASX that no longer exist. So, uh, again, I don't think these are particularly new trends, but certainly with the need to invest heavily in AI, I think it will accelerate, uh, some of the interest in, uh, these, uh, other, other alternatives that are available to, to firms, uh, in the future. Agreed. All right, we're almost out of time, but I wanted to bounce one final, uh, item off of you that I thought was really one of the more interesting, [00:45:00] uh, data points in your report, and that was how, uh, the biggest gr- growth sector, um, correct me if I'm wrong here, was the income partner. Yep. Right? And the, the income partners also happen to be Not the most, um, financial rewarding roles in the business, right? So h- how... Tell us a little bit about what the finding was there and then kind of that, that tension between their growth and how that may impact financial performance. Sure. No, happy to do that. I mean, I would say that, that if I reflect on the two, uh, most popular topics of conversation in any meeting I've attended over the past, uh, year or two, number one is gen AI and number, you know, 1.1 is the rise of the income partner group. Uh, and I think we've talked a, a good deal about, uh, AI and its impact [00:46:00] on law firms throughout this conversation. When it comes to, uh, the investment in income partners, yes, it's, we've seen 6% growth. I think it's important to bear in mind that, that that is off of a, a, a relatively low, uh, number to begin with. The, the, the point here is that as, um, as, uh, some single-tier firms were watching their top talent among their senior associate and council ranks depart to two-tier firms who are only too happy to give those same individuals a partner title, albeit income partner, uh, they have simply adapted to those market dynamics. And, uh, in an effort to retain that top talent Uh, they've understood that they too have had to adopt a, a, a class of income partners, give those individuals the partner title. Uh, recognize that in many instances the [00:47:00] client wants to work with someone who is called a partner. So in order to give those individuals the opportunity to build a, a, a book of business worthy of an equity stake in the firm, uh, they needed to be able to, to help them get to that point. Um, as, as you've highlighted in the report, we do, however, talk about the challenges of that trend. Uh, and what caused us to look at that was that it wasn't that long ago, maybe a decade ago, where, uh, I would be sitting in loads of peer reviews with firms, uh, under two-tier partnership models, and very often having to show them that, uh, in terms of, uh, net contribution to profitability on a per lawyer basis, their income partners in some instances were making a negative contribution. In other words, they were costing the firms more than, uh, they were producing. The [00:48:00] typical scenario was that the income partner was probably once an e- an equity partner. Their practice had dwindled. The firm, uh, probably should have, uh, uh, encouraged them to move on. But because of the unique, uh, nature of a firm, law firm culture, these individuals had probably devoted decades of their lives to the firm. The firm typically, or in, in a lot of instances would have said, "Look, we can't jus- justify them remaining an equity partner, but they've given a lot to this, uh, business. We're gonna let them keep the partner title. We will simply, uh, make them an income partner." Now, by doing that, they, they literally turned the income of that partner into a high fixed salary cost to the firm. Meanwhile, if the reason for de-equitizing them was that their, uh, uh, productivity had dropped, [00:49:00] now you ended up with a situation where, uh, their productivity probably dropped even further because you've de- you know, you've demoralized them by stripping them of equity. Uh, and so what they were producing often didn't cover even the, the salary cost than w- w- what had become a fixed cost to the firm. So we would have for a long time counseled firms to maybe think twice about growing that population Now, at the other end of the spectrum, you had firms who h-had, uh, used the income partner title as a proving ground for, uh, younger, y-you know, people sort of earlier on in their, uh, careers at the senior associate level. Uh, it would give them a three to four-year runway to, uh, prove whether they were worthy of equity. Those individuals, of course, wildly motivated to prove that they're worthy of equity. Their productivity would be very [00:50:00] high. Their, uh, salary cost would be comparatively lower than those more senior income partners, and it, it proved to be, it has proved to be a, a very profitable, um, uh, undertaking. Having said that, if you compare the, uh, contribution to profitability of an income partner versus counsel, the title that has been, uh, the, the traditional substitute at, at single-tier firms, counsel, uh, uh, uh, contributed far more in terms of overall profitability than income partners. So that's the first point, is, is just the dent that it's putting onto the expense base, uh, of, of firms who've been adopting it. The second issue is what are you gonna do with all of these people if after, uh, three to four years, then y-you decide that they're not, uh, appropriate to be made equity partners? The reason why [00:51:00] the models work so well at, uh, uh, fewer firms in the past is that even if you, if those individuals weren't gonna make it to equity, you almost had a social contract with them in that you'd given them a partner title. You'd told them that they weren't gonna make it to equity, but they were l- out in the market, in the lateral market, already a partner, so the chances were that they would be picked up at another firm with that partner title. What I worry about is that as you see more and more investment in an income partner group across a, a larger group of firms, what's gonna happen in that three to four-year timeframe, uh, with the, the partners who aren't gonna cut it as equity partners? Where do they go when there is now a glut of income partners in the market? That is a really great analysis, um, and you provided so much color there [00:52:00] around that headline. Um, and, and that makes a ton of sense. I mean, um, I, I've, I've heard and seen with my own eyes the scenario where you have somebody on the tail end of their career who did give decades of their, um, life to the firm, and there's sometimes a hesitation, um, to move them on to retirement. Mm. And, uh, so, so they stick around, and it's not always the most productive scenario. But this has been absolutely fa- fascinating conversation. I've enjoyed it so much. Um, I really appreciate you taking the time to come and chat with us. Likewise, Ted. Great to be a part of your podcast. Thank you. Thanks for having me. And then, uh, before we go, how do people find the report? What's the best way? Oh, well, they can access it through, uh, Citi's website. Uh, and, uh... Or they can email me. I'm [00:53:00] always happy to send, send the report their way as well. So greta rus- greta.rusino@citi.com, and it's Greta with two Ts. And we'll include a link in the show notes as well. That'd be great. Yeah. That'd be great. Save you some headaches of answering emails. Well, Greta, thank you again, and, um, I look forward to meeting you in person hopefully real soon. I hope so too. Thanks, Ted. All right. Take care. Okay. Ta-da. Bye. Bye-bye. 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. Your feedback helps us provide you with top-notch content.