AI-Related Practice Management Considerations for Law Firms

“AI-Related Practice Management Considerations for Law Firms,” that’s the subject of today’s ACTEC Trust and Estate Talk.

Transcript/Show Notes

This is Jim Milton, ACTEC Fellow from Tulsa, Oklahoma. Practice management is the nitty-gritty of a firm’s business administration. Artificial intelligence has the potential to touch many areas of our law practices. What do law firms need to keep in mind as they roll out new training, policies, and business administration enhancements in tools such as billing?

ACTEC Fellow George Smith from Greenwich, Connecticut, is here to enlighten us on this quickly evolving technology. Thank you, George, for joining us today. Articles and stories about AI seem to dominate the news cycle.

How Will AI Impact Law Firms

Jim Milton: Is this AI hype or reality?

George Smith: It’s mostly reality, Jim. AI and its impact on our practices and daily lives is here to stay. However, we have lived through technological changes in the past, such as the introduction of Lexis and Westlaw. Many of you may recall having to check the research results of Lexis or Westlaw by going back to hardcover books in our law libraries, as well as shepherding those results by hand. Lexis and Westlaw, along with tax software that performed complicated, interrelated calculations, caused great concern when new but are now readily accepted and used daily in our practices.

A big difference now is the rapid evolution of AI tools, particularly generative AI tools that have the ability to create new content. Moreover, the improper use of AI tools, resulting in confidentiality or privacy breaches, could have significant economic consequences on our firms. Effective training will be important to us and our firm personnel in navigating the challenges of AI. Everyone will need to be trained. Educational opportunities could be offered in-house through state and local bar associations, through product vendors like Lexis and Westlaw, or through private educational vendors.

For example, I’m receiving at least three to five emails a week offering educational opportunities in the area of AI. Educational topics should include diligence: that is, is the AI-generated content accurate and reliable? Confidentiality: How do I safeguard my clients’ information? Competence: we need to understand not only the output that AI produces and whether it’s accurate and reliable, but we also need to understand what it does with our input. AI, when used in what we call an open environment, uses our data to train itself, and that’s an aspect of it where we have grave concerns about confidentiality.

Finally, an AI chatbot that produces a legal brief is, in effect, practicing law, and we need to supervise it appropriately and be concerned about whether the AI chatbot is actually engaging in the unlicensed practice of law.

AI’s Effects on Staff

Jim Milton: With all of these new developments, do you think that AI could affect morale?

George Smith: Absolutely. Much has been written about the effect of AI on job elimination and, as a result, morale. It’s too early to know how much of an impact that will be, but it’s fair to say that AI may contribute to some job loss and change the nature of tasks for both non-legal personnel and junior lawyers.

But that may not be all bad. Junior lawyers won’t need to engage in tedious document reviews because AI can handle it better and faster. This should free up time for our junior lawyers and for those of us who supervise them to think more deeply about the issues our clients bring to us.

Be proactive in engaging firm personnel. Create a positive environment by stressing we are all in this together and we’ll learn together. And as far as being concerned about job loss goes, the dean of the law school I attended recently told his students: “You won’t lose your job to AI, but you will lose your job to the student who knows how to use AI.” I think that’s good advice.

Addressing Uses of AI in an Employee Handbook

Jim Milton: Well, George, should I update my employee handbook if I’m running a law firm?

George Smith: Yes, Jim. Employee handbooks need to be updated to implement the firm’s policy regarding issues like the use of generative AI by firm personnel. That is, can you use chat GPT, for example, to input sensitive client information? The answer there is no, but that needs to be expressed to your firm personnel. How to protect client information and whether and how much to disclose to clients of the firm how the firm uses AI and the scope of that use in the course of representing the client.

In developing that policy, consider creating a committee or working group that includes junior lawyers and staff. This may also help build camaraderie.

Review of the “Billable Hour”

Jim Milton: Every time I see a new development roll down the hill, so to speak, I hear the same question asked over and over again. Is the billable hour dead?

George Smith: Ah yes, the great debate over the demise of the billable hour is now once again a hot topic of discussion. Certainly, billable hours are likely to be reduced through the use of AI. Two things, though.

• One, this is a great time to consider alternative fee arrangements. For example, for estate planners, is charging for the number of hours it takes to draft documents a good measure of our value or is it the wisdom, knowledge, and expertise we have in advising our clients through their tax and non-tax issues? Fixing a fee based on the value of that knowledge and expertise is something I believe clients will respond to favorably. In fact, I know I and many other estate planners are currently using fixed fee arrangements and I think the key is to properly evaluate the value you’re giving to the relationship.
• Two, while AI is still in its infancy, we are able to bill for the time required to check the output produced by an AI tool. In fact, we have an obligation to do so. I will note that queries have been made as to whether when using an AI tool, could we still bill for the time that was saved by using that tool. And not surprisingly, the answer is a resounding no to that.

AI and Malpractice and Cybersecurity Insurance Coverage

Jim Milton: Well, with all these risks floating around, it makes me ask this next question. What about insurance coverage?

George Smith: So I’d like to address both malpractice and cybersecurity coverage briefly. With respect to malpractice coverage, this is definitely a time to talk to your agent or carrier to find out if your policy adequately insures you against potential malpractice claims for misuse of AI tools. I have learned from our firm’s insurance consultant that in 2023, there were few claims stemming from AI. Unfortunately, that same agent quickly added that those claims are sure to increase as AI becomes even more prevalent as we use it in our practices.

Cybersecurity coverage is strongly encouraged. Threat actors are not bound by the ethical rules we play by. They are using AI ruthlessly to improve phishing and other scams while educating our personnel to prevent them from falling victim to threat actor scams is preferred. Ensuring your firm in the event of an incident will give you further peace of mind.

Jim Milton: Any final thoughts?

George Smith: Very quickly, don’t panic. This is an exciting time so embrace the challenge. But also, in the words of the immortal Hill Street Blue Sergeant, “let’s be careful out there.”

Jim Milton: I love it, George, as someone who occasionally uses AI for really basic and non-sensitive things, it is a brave new world for all of us. Thank you so much for giving us some things to think about.

George Smith: A pleasure to be with you, Jim. Thank you.

You may also be interested in:

• What Is Artificial Intelligence and the Impact on T&E Law in 2024 and Beyond? (Apr 2024)
• AI and Trust and Estate Law: The Future Is Here to Stay (Jan 2024)
• Government Regulation of Artificial Intelligence (will post April 30)

A video to share with your clients:

Artificial Intelligence (AI) and Planning Your Estate

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