The Brief:
Wall Street banks including Morgan Stanley, Citigroup and Goldman Sachs are pushing Big Law to cut fees, arguing AI has made routine legal work faster and cheaper.
In Australia, pricing models are starting to shift, but are clients actually paying less?
The billable hour is under siege, and this time it’s the clients doing the attacking.
According to the Financial Times, Wall Street banks are pushing major law firms to slash fees, arguing the leverage model that’s powered Big Law for decades can’t survive the AI era.
Morgan Stanley and Citigroup have told firms they want new payment arrangements that save them money. Goldman Sachs has been quietly asking firms exactly how much AI is saving them, expecting a share of the upside.
The maths is simple enough.
Firms have long billed hourly for armies of junior lawyers grinding through research, document review and discovery. AI now does that grunt work in a fraction of the time, at a fraction of the cost.
“If the number of hours they’re working on a matter has come down because of AI… our expectation is for costs to come down significantly per transaction,” Adam Meshel, global head of legal at Citigroup, told the FT. Meanwhile, Eric Grossman, Morgan Stanley’s general counsel, called BigLaw’s compensation model “extraordinarily unstable.”
Australia is facing the same pressure. Firms are reportedly adopting alternative fee arrangements as AI use accelerates.
According to the AFR, Keypoint Law remains the only local outfit to ditch the billable minute entirely, but more firms are shifting towards metrics that separate value from time. For example, DLA Piper’s Australian arm has introduced a “performance measure” that prioritises fees generated, instead of just hours logged.
Thomson Geer has gone further still, splitting into two firms: Thomsons, chasing AI-resistant, top-tier corporate work, and Faculti, an AI-powered practice built for procedural, process-driven matters like insurance and leasing.
Nonetheless, clients all over the world aren’t actually paying less for legal services in today’s AI world. A recent Axiom survey of 600+ senior legal leaders globally found just 6% of law firms charge less for AI-assisted work. 58% haven't cut rates at all. 34% are charging more.
Wall Street’s move on Big Law is a sign of what’s coming. Law firms are talking a big game on AI adoption, but pricing clearly isn’t keeping pace. Clients have noticed, and they’re not waiting for firms to catch up.
Source: Financial Times