Key insights:

• • • UK law firms face a more selective growth market in 2026Ěý— Client demand remains steady, but external legal spend expectations have cooled, with growth concentrated in areas such as Regulatory, Labor & Employment, and international work.

    • Legal expertise alone is no longer enough — UK legal buyers increasingly favor law firms that combine technical excellence with commercial judgment, business understanding, and practical guidance aligned to client priorities.

    • AI adoption is becoming a client expectationĚý— Corporate legal teams are moving faster than their outside law firms on GenAI, and many UK legal buyers now expect outside counsel to use AI to improve efficiency, workflows, and the quality of legal work.

The legal market in the United Kingdom today has shifted into a new normal. While law firms saw an explosion of demand and spending immediately following the pandemic, increasing client caution has resulted in a shift in priorities. Today’s law firms cannot simply rely on their old ways of providing legal service to succeed, as UK clients expect firms to combine expertise, commercial judgment, international reach, and visible AI-enabled improvements in how legal work is delivered.

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2026 State of the UK Legal Market

A new report from the Thomson Reuters Institute, “2026 State of the UK Legal Market,” reveals how the UK legal market is shifting, as more judicious clients are beginning to force law firms to reassess their strategy. Overall anticipated net spend from legal clients has seen declining growth rates in recent years, and while some practices like Regulatory and Labor & Employment continue to see strong demand growth, other practice areas such as Insurance, IP, and Disputes face potential contraction.

This shift is also guided by emerging buyer preferences. The report reveals an increasing commerciality to the UK legal market, one in which clients increasingly favor advisors that combine legal excellence with commercial judgement, and those that are leveraging AI to bolster not only efficiency but improve the overall legal work product.

Taken as a whole, the report paints a picture of clients that now are moving faster than their outside legal advisors, strengthening their internal capabilities, and setting clearer (and higher) expectations. This means that UK law firms cannot rest on their laurels, as clients increasingly push their outside firms to keep up with new business challenges.

The market is cautious, but opportunity remains

The report reveals that UK legal buyers are more cautious about external legal spend than they have been at any point in the last five years. That may mean law firms can no longer rely on the broad-based demand that defined the post-pandemic period and instead need to be more precise about where opportunity exists — and where it doesn’t.

The report tracks buyer sentiment through net spend anticipation (NSA), which measures the share of buyers expecting to increase external legal spend over the next 12 months minus those expecting to decrease it. Since its 2021 peak, UK NSA has fallen steadily to +5 percentage points in 2025, returning the market to the more stable, single-digit baseline that was seen before the pandemic.

For those law firms looking to capture increased business, the report makes clear that legal expertise is now the price of entry, not the point of differentiation. The firms that stand out will be those that know how to apply their expertise in ways that reflect the client’s business realities.

Indeed, that is becoming even more important as corporate legal departments face growing pressure to demonstrate their own value to the wider organization, and they’re increasingly pointing to improvements in their own quality and effectiveness even before mentioning cost savings, efficiency, or time savings. Not surprisingly, more than one-third of UK legal buyers now cite business savviness as a reason they favor a particular law firm.

To help demonstrate their internal value, clients are pushing their outside law firms to leverage advanced technology to improve the overall effectiveness of legal work. Of course, this has resulted in a clear gap, the report notes, between how corporate legal teams are moving and how law firms are responding. For instance, the report shows that more than half of UK corporate legal respondents say their organizations are already using GenAI tools across the business, compared with just about one-third law firm respondents who said this.

That difference in outlook matters because clients increasingly believe AI will become a larger part of how legal work is delivered, and they’re not content to simply wait and see whether their outside counsel will fully adopt the technology. Indeed, corporate legal departments are expecting their outside law firms to keep pace with how legal work is changing, and they will reward those firms that do.

You can download

a full copy of the Thomson Reuters Institute’s “2026 State of the UK Legal Market” by filling out the form below:

Key insights:

• • • Capital and human resource drains — Managing the billable hour model is seen as wasting capital and time for both law firms and clients.

    • The billable hour and talent retentionĚý— The billable hour may be contributing to a talent drain in litigation defense and other practices.

    • Data may be the answer — One firm is pivoting to data-driven pricing based on key performance indicators (KPI), which it views as a win-win for both the firm and its clients.

“The billable hour is a gigantic waste of time for everyone involved.” That is the blunt assessment of founding partner Bob Kopka. “It stifles innovation, penalizes efficiency, and has grown into a status quo that costs more than it benefits.”

The administrative-industrial complex

The primary target of Kopka’s critique is the massive administrative overhead required to manage the billable hour. On the client side of the firm’s work in defense litigation, insurance companies employ vast departments and third-party vendors specifically to review, audit, and cut legal bills. In response, law firms like Kopka have had to build their own payment departments to counter this, represented by teams of billers trained on dozens of different platforms and appeals departments dedicated to what Kopka describes as “chasing payments on appeals, most of which are both unfair and unsuccessful.”

This administrative-industrial complex, Kopka argues, creates a world in which lawyers spend as much time justifying their work and subsequent compensation as they do practicing the law.

“The time to set up new matters, add timekeepers, approve budgets as well as approve invoices, and cut separate checks for every matter is arduous,” notes Kopka Law COO Donna Markus. By moving to a monthly retainer or portfolio-based alternative billing model, Kopka Law aims to dismantle this bureaucracy, freeing up significant capital and human resources for both the firm and the client.

Killing the profession 6 minutes at a time

Perhaps the most provocative aspect of Kopka’s stance is the link between billing models and the legal industry’s talent crisis. The traditional model requires attorneys to feverishly capture every one-tenth of an hour, documenting their day into six-minute increments with hyper-specific narratives and present-tense verbs.

According to Markus, this isn’t just an annoyance; it’s an existential threat to the defense bar. “Talent is leaving the defense side because of the tedious nature of capturing their time,” she warns, adding that when a lawyer’s value is reduced to a billing code, the “most valuable time a lawyer can spend” — engaging in free thinking — is often treated as a non-compensable activity because it doesn’t fit into a standard billing code.

This administrative-industrial complex, Kopka argues, creates a world in which lawyers spend as much time justifying their work and subsequent compensation as they do practicing the law.

“We are professionals,” Kopka states. “Our performance should be reviewed and judged by our KPIs [key performance indicators], not on whether a billing entry ‘appears excessive’ or whether the attorney obtained permission to do a jury verdict search”.

Why the billable hour hates AI

Kopka and Markus also highlight a dangerous paradox in the modern legal market: The billable hour actively penalizes law firms and their lawyers for becoming more efficient. As AI increasingly automates routine legal tasks, firms that use AI to finish a task in 30 minutes that used to take three hours are effectively cutting their own revenue under the traditional model.

And as AI starts to replace some billable activities, many insurance clients are refusing to pay for software or AI costs while simultaneously expecting to reap the benefits of the efficiency and cost-savings that those tools provide.

Kopka sees alternative billing models as flipping this incentive. Under a well-constructed billing arrangement, a firm has every reason to invest in cutting-edge technology. If they can achieve the client’s desired outcomes faster and with fewer resources, they are rewarded for their efficiency rather than punished for it.

Data as the solution for the “inertia of fear”

If the benefits are so clear, why then has the rest of the industry been so slow to follow? Kopka and Markus attribute the delay to “inertia born of fear” — including the fear of being underpaid or simply not knowing how to measure value besides using the clock.

They argue that this fear is no longer justifiable because the data exists to solve it. “Fear not,” they insist. “We have metrics.” Between the insurance company’s data on frequency and severity and the firm’s own data on litigation categories, there is more than enough information to fashion a mutually beneficial pricing arrangement.

The Kopka model focuses on key performance indicators (KPIs), rather than simply time spent on a matter. These KPIs include:

• • • cycle time and case disposition
    • early evaluation and consistent communication
    • indemnity outcomes relative to injury type
    • strategic collaboration and value added

Kopka believes this approach restores the firm-client relationship and moves it toward a true partnership. The law firm is finally treated as an independent contractor, rather than a legal services vendor that needs to be micro-managed. This gives the law firm the autonomy to focus on delivering legal services that achieve the client’s goals, instead of having to hold endless discussions about how the firm is managing itself as a business.

A call to action for the defense bar

Kopka Law sees its success with these models as a challenge to its peers. The firm uses the term alternative billing arrangements, arguing the legal industry’s attempts to use what are commonly called alternative fee arrangements (AFAs) actually focus on the wrong objectives. “AFAs are often designed solely to save the client money,” explains Markus. “They’re destined to fail because they potentially force the law firm to compromise or cut corners to meet a low-cost bar.”

Instead, Kopka aims for a win-win model that appropriately — and perhaps even generously, if structured and executed properly — compensates the law firm for excellent service and the achievement of specific, agreed-upon goals.

Kopka Law is actively encouraging other firms and insurance carriers to enter these negotiations. The firm sees it as a necessary evolution to stabilize budgets and make legal spend more predictable for clients.

For Kopka and Markus, the message is clear: The legal industry has the metrics and the tools to do better. And the better approach, they argue, is a firm-client partnership that’s driven by data, aligned incentives, and a commitment to results over activity. And with AI and advanced data analytics, that model is within reach for most law firms.

You can find more about how law firms are managing their billing and pricing issues here

Key insights:

• • • A significant visibility gap persists between legal departments and the C‑Suite — Most general counsel believe their legal department contributes strategically, yet senior executives often fail to see or understand that value.

    • Strong internal relationship‑building is critical (and often underdeveloped) — This capability enables legal teams to spot risks earlier, stay embedded in decision‑making, and make their work more visible across the business.

    • Closing the gap requires communicating legal’s value and increasing true AI fluency — For legal teams to be seen as proactive, strategic partners rather than task executors, communication and strong AI fluency are essential.

General counsel (GCs) have spent years doing more with less, tightening their legal spend, and aligning the law department’s priorities with the wider business. And yet, despite all of this effort, a striking visibility gap persists. While 86% of GCs believe their department is a significant contributor to overall organizational objectives, only 17% of the C-Suite agrees, according to the , from the Thomson Reuters Institute, which was based on more than 2,300 interviews with corporate general counsel. Meanwhile, 42% of C-Suite executives say the legal function contributes little or not at all to company performance.

The challenge for GCs is whether their staff have the skills and capabilities to make their work visible, relevant, and understood by the business at large. To address this perception gap in 2026, every GC needs to prioritize building richer internal relationships with business leads, moving from task-based to outcome-focused messaging, and improving the team’s collective AI fluency.

Empower teams to build internal relationships

Nearly half of all GCs surveyed for the report cited staffing and resource constraints as the top barrier to delivering additional value, a concern that has remained stubbornly consistent for years. Beyond headcount, the report underscores that the deeper challenge facing legal departments is relational.

Internal relationship-building is one of the most critical and underrated people skills in a legal department’s collective skill set. Indeed, 68% of GCs rate internal dialogue as their most valuable source of information about emerging risks. In fact, the most successful GCs use a deliberate combination of formal and informal methods to build connections with the internal business units that they serve.

You can learn more about how to assess your legal department’s strategic positioning with theĚýThomson Reuters Institute’s Value Alignment toolkit, here

Some run structured weekly face-to-face sessions with business departments, complete with schedules, plans, and frameworks. Others rely on walking the halls, open-door policies, and ad-hoc conversations that keep the corporate law department visible and accessible on a human level.

The report offers a five-dimensional framework to help GCs audit where, with whom, and how often legal is in dialogue with other parts of the business.

Use communication tactics that focus on business outcomes

Even when legal departments are doing excellent work, they often describe it in the wrong language. Many in-house lawyers categorize their contributions in task-based terms — such as “We support M&A” or “We analyze contracts” — rather than in value-creating terms.

Some in-house legal leaders have progressed to stakeholder-level framing, such as, “We protect the company from competitive threats” or “We support new business opportunities.” Still, neither of these levels truly communicates value to a C-Suite audience, the report shows.

To effectively align the law department’s priorities with business goals, in-house attorneys need to develop the skill of communicating through a business lens. For example, one GC states that the primary goal of the law department is to “find the fastest and most compliant way for the sales department to sell products.” This response reframes the legal function’s activities as much more business fluent and value-added.

Legal teams are not always good at touting their accomplishments, however, and this is a challenge when a lot of the work can be categorized as invisible. For example, when protecting the company is done right, threats are eliminated before they occur and no one notices. When efficiency is unlocked through process improvement, the C-Suite only sees the outcome if someone connects the dots explicitly. This is why surfacing invisible value is now a business imperative for corporate law departments.

Advancing from AI literacy to AI fluency

The most significant skills challenge facing legal departments in 2026 is how to best use AI strategically. Mentions of AI as a strategic priority among GCs have doubled in the past year, according to the report. In fact, almost half of all GCs now reference AI in their survey interviews. Yet the report draws a sharp distinction between being AI literate and being AI fluent, with most departments being the former but not the latter.

To close that gap, the report recommends a six-layer model covering learning, empowerment, ownership, accountability, usage, and expectations.

At its core, the model asks GCs to start with open encouragement and access to AI tools to build momentum, then shift toward more formal expectations around adoption to make AI use a daily habit.

You can download a full copy of the Thomson Reuters Institute’s here

Key insights:

• • • Client expectations around AI have shifted from curiosity to accountability — Law firms are now being asked not just whether they use GenAI, but to prove how it delivers measurable cost savings on specific matters — a question most firms still cannot answer with hard data.

    • A growing contradiction defines firm/client relationships — As clients simultaneously demand AI adoption, require granular billing transparency, and in some cases refuse to pay for work performed with AI, they’re creating a pricing and value paradox with no clear resolution for their law firms.

    • The ROI challenge around AI is fundamentally a relationship problem — Driven by a widening gap between what clients expect to save and what firms can demonstrate, a rift has developed between clients and firms, which is compounded by the fact that few firms have a coherent GenAI strategy in place.

NEW YORK — opened with a keynote conversation featuring Mindy Kaling, the Emmy-nominated writer, producer, and Tony Award-winning playwright, who reflected on a career built around one enduring fascination: messy relationships. She talked about growing up wanting to write something like Sex and the City, only to end up helping to chronicle the internal politics of a Scranton, Pennsylvania paper company in The Office. She talked about her love of watching people navigate breakups and power struggles and then finding the comedy in it all.

If she’s looking for new material, the three standing-room-only panels that followed could keep her busy for seasons.

Not surprisingly, the relationship between clients and their law firms has always been complicated — bound by mutual need but strained by competing incentives. Now, that tension is starting to reach a rolling boil as many law firms can’t seem to agree on exactly how the gains of their use of AI tools, especially generative AI (GenAI), are going to be split, or even if they’re going to be split at all.

AI is no longer optional or experimental — and many clients simply assume it’s already in use.

Across three ¶¶ŇőłÉÄę-sponsored sessions during this week’s Legalweek event, that tension surfaced again and again — not as a future concern, but as a present reality. Today, clients are arriving at the table more informed, more demanding, and more willing to use AI themselves. Firms are investing heavily in AI, but they still are struggling to quantify returns in terms their clients will accept. With the rates that law firms charge increasing — averaging more than 7% growth in 2025, and likely to stay on that pace in 2026 — it sets up a collision with savings mandates that have yet to produce a shared framework for measurement. And underneath all of it, a fault line is building pressure — one that, as Ellen Hudock, GSK’s Chief of Staff Legal and Compliance, is not being resolved.

In 2026, GenAI has become the thing neither side can stop talking about, the thing both sides agree matters, and the thing that neither side can agree on how to handle.

This is not the story of an industry resisting change. Nearly everyone at Legalweek agreed that AI adoption is no longer optional. The harder questions, however, and the ones that echoed through every panel, every audience comment, and every hallway conversation is who benefits, how much, and who gets to decide.

Proving AI’s path to saving clients money

Three years ago, the client question was simple: Are you using AI, and would you use it on our matters? In 2026, that question has matured, and the new version is much harder to answer.

GSK’s Hudock described the shift bluntly during one panel. GSK is learning as much as it can from its outside law firms about how they’re deploying GenAI, she said, and are always looking to partner on new use cases. However, she noted that the conversation has moved well past curiosity. The pressure to deliver savings — internally and externally — is intense, and the questions have sharpened accordingly: What are you using? How are you using it? How does it generate savings?

Clearly, firms are hearing this message. Matthew Beekhuizen, Chief Pricing and Innovation Officer at Greenberg Traurig, noted that the pace of AI-driven change has accelerated sharply, particularly since October 2025. Clients who had previously said nothing about AI are now asking how it’s being used on their specific legal matters.

Indeed, AI is no longer optional or experimental — and many clients simply assume it’s already in use, said Mark Brennan, a partner at Hogan Lovells.

The trouble is that firms still can’t give clients the answer they most want to hear. When pressed on how much cost savings AI is actually achieving, the response from the firm side is often: We’re still gathering the data. Mitchell Kaplan, Managing Director of Zarwin Baum, acknowledged the industry is still in the anecdotal phase of measuring returns.

Sergey Polak, Director of Technology Innovation at Ropes & Gray, described the current state of ROI measurement as being based more on conventional wisdom rather than hard evidence. Hudock’s response to this was pointed: That’s exactly the situation in which clients want to partner. Supply the work, and let’s figure it out together.

The contradictions in the room

If the evolution in client expectations were the whole story, it would be manageable; however, the reality is messier than that, because clients are not speaking with one voice.

During another panel, Barclay Blair, Senior Managing Director of AI Innovation at DLA Piper, laid out the contradictions in sharp relief. Blair, who introduced himself as “the extremist on the panel,” is seeing clients who expect AI to be used and are asking how it will achieve specific savings targets. At the same time, many law firms are still receiving directives that feel lifted out of 2023, such as demands for warrants that models are unbiased, and declarations that firms cannot use AI without explicit permission. In 2026, both postures are arriving in the same inbox.

When pressed on how much cost savings AI is actually achieving, the response from the firm side is often: We’re still gathering the data.

The billing conversation captures this tension perfectly. Polak of Ropes & Gray noted that clients are beginning to ask for line-item transparency on invoices — was AI used on this task, and how much time or money did it save? Simultaneously, as Blair observed, other clients are issuing guidelines stating they won’t pay for certain services if performed by AI. This isn’t clients barring AI outright; rather, its clients demanding firms adopt AI, then using that very adoption as leverage to negotiate a decrease in costs. Not surprisingly, this becomes a self-reinforcing cycle with no obvious exit — at least, not for law firms.

Meanwhile, Zarwin Baum’s Kaplan raised a billing paradox that GenAI is making harder to ignore. As AI compresses work that once took hours into minutes, an itemized hourly bill increasingly tells a story that undersells the value delivered. His proposed answer: a return to the single line-item services rendered bill, which actually predated the billable hour. Kaplan then asked whether clients would actually accept it.

The advice to the law firms in the room from DLA Piper’s Blair was more blunt: Don’t wait for the client to set the terms. Lead the conversation about AI ROI and set the meeting. As Blair described, this is now the time to negotiate how value gets shared, while both sides are still figuring out the rules — not after one side has already written them.

The pressure hasn’t yet found a release valve

None of these tensions exist in isolation. They are symptoms of a structural mismatch between what clients need from the economics of legal AI and what firms are currently able to demonstrate — and the numbers suggest the legal industry is less prepared for this conversation than it thinks.

As ¶¶ŇőłÉÄę’ Steven Petrie pointed out, those law firms with a GenAI strategy are 3.9-times more likely to achieve ROI than those without one. Yet, only 22% of firms have such a strategy, Petrie said. That gap — between the firms that are thinking systematically about AI’s role in their business and those that aren’t — may turn out to matter less than the gap between what clients expect to save and what firms can show they’ve delivered.

The ROI question, in other words, is not just a measurement challenge, rather it’s a relationship challenge. And like all the best relationship drama, the tension doesn’t come from disagreement about whether the relationship matters. It comes from both sides wanting something slightly different from it — and neither being quite sure if both sides can get what they want.

If Mindy Kaling is still looking for complicated relationships to write about, she knows where to find them. This one’s going to need a few seasons to work itself out.

You can find more of here

Key takeaways:

• • • Demand slowdown reverses LFFI gains — The LFFI’s Q4 2025 dip reflects a modest demand slowdown, marking a shift from rapid post‑pandemic rebound to a more stable, steady market.

    • Transactional practices plateaued while counter-cyclical regain momentum — Transactional practices leveled off while demand in the litigation, bankruptcy, and labor & employment practice areas accelerated, driven by rising disputes, regulatory pressure, and workforce complexities.

    • Clear opportunity for strategic realignment — Law firms may be able to shift their staffing toward growing counter‑cyclical areas, strengthening their pricing discipline and refining their recruiting processes.

After two consecutive quarters of improvements in the ¶¶ŇőłÉÄę® Institute’s Law Firm Financial Index (LFFI) score, the fourth quarter of 2025 marked a modest reversal in which it fell, albeit slightly to 61. The key driver behind this decline was a deceleration in demand that was meaningful enough to pull the overall score down and may signal that the market is moving into a more normalized rhythm — less snapback growth and more steady performance.

To understand what this means in practical terms, it helps to look beneath the headline numbers and examine not just what happened in Q4 2025, but also over the last two years. Then, a clear narrative emerges: Transactional work — M&A, corporate general, real estate, and tax — was powering the market in Q4 ’24 but largely plateaued in Q4 2025. Meanwhile counter-cyclical practices — litigation, bankruptcy, and labor & employment — regained momentum during the same timeframe.

Put differently, the practices that powered growth in the last year are fading as measured against their own baselines, while those practices that performed less strongly then are now starting to take the lead for the legal industry.

Practice level demand dynamics

By applying a magnifying glass to each transactional practice’s behavior over the past three quarters, one can identify a few important contrasts. The practice that stands out for its lowest growth in Q4 2025 is tax — and, in fact, across the final quarters of the last three years (even when it had a good performance in early 2025), that momentum didn’t translate to the end of the year. This indicates that tax has constantly posted the weakest demand growth, bottoming out at -0.9% in Q4 2023, when it was again the practice with the lowest growth. Even in the Q4 2024 — a stronger year for most practices — tax grew only 1.5%, well below both its transactional and counter-cyclical peers.

This persistent underperformance may reflect several factors, such as increased internalization of routine tax work by corporate tax departments, pricing pressure in highly standardized matter types, and slower deal flow in M&A reducing ancillary tax activity. Whatever the cause, tax’s muted trajectory has had a dampening effect on overall transactional momentum and has acted as a drag on top-level demand growth.

On the other side of the room, counter-cyclical practices strengthened in Q4 2025 after a softer Q4 2024, nearly reaching the same growth that they presented in Q4 2023. Collectively, these practices rose to around 3.2% in Q4 2025, compared to about 1.5% growth in Q4 2024. This represents a true rebound after an unusually strong 2023, which was likely caused by lingering pandemic-related effects and the period’s surge in inflation.

Litigation leads the pack

Litigation provides the clearest example of this resurgence. During the Q4 2025, litigation led with roughly 4.3% growth, compared to 2.4% in Q4 2024. Indeed, the practice closed 2025 with renewed momentum, making it the standout in performance among major practices.

Litigation’s acceleration in late-2025 suggests that court systems have fully normalized, backlogs have largely cleared (in relative terms), and organizations are encountering a more contested operating environment. Regulatory scrutiny, geopolitical risk, supply chain disputes, and workforce-related conflicts all contribute to a litigation profile that is less dependent on economic cycles and more tied to the complexity of today’s business environments.

By contrast, after bankruptcy demand growth surged to 6.4% growth at the height of the pandemic recovery in 2023, the practice area experienced a dramatic cooldown the following year, falling to 0.4% just 12 months later. However, bankruptcy recovered modestly to 2.8% in Q4 2025, although still far below the extraordinary levels seen during its previous spike.

Taken together, these patterns suggest that corporate clients may be contending with a broader set of pressures — regulatory instability, workforce management complexity, and the downstream effects of post-pandemic backlogs — that could continue to generate steady legal demand.

Counter-cyclical trends reflect opportunity, not just reactive demand

The upswing in demand growth for counter-cyclical practices is not necessarily a sign of economic turbulence, however. Indeed, it shows the market can be stable and still produce more litigation, it can be cautious and still require restructuring advice, and it can be steady and still demand intensive employment support. The fact that transactional demand continues at a solid, albeit slowing pace, shows that this is not necessarily the recession-boosted practices that are driving law firm performance.

In fact, in a market in which transactional demand has stabilized and disputes and compliance work is rising, many law firms can use the moment to better align their operating model with the practice areas in which momentum is building and by aligning with actual demand.

For example, as litigation, bankruptcy, and labor & employment areas see higher demand growth, a firm may benefit from adding capacity in those areas, improving staffing leverage, and preventing partner bottlenecks. Meanwhile, steady but flattened transactional demand could call for disciplined, pipeline‑based hiring.

The practices that powered growth in the last year are fading as measured against their own baselines, while those practices that performed less strongly then are now starting to take the lead for the legal industry.

In addition, lower demand for transactional practices can represent an opportunity for law firms to refine their recruitment processes, as recruiters can take the time to seek those candidates whose skill sets offer added value. Prioritizing the hiring of candidates who bring fresh ideas and technological capabilities to support the tech-driven evolution of legal services may be the push some law firms need to meet the expectations of clients that are increasingly demanding greater value for their dollars.

This does not mean transactional work should be deprioritized, however. Instead, firms should adopt a dual‑track strategy: Optimize and streamline transactional capacity for efficiency, while strategically expanding counter‑cyclical teams in the areas in which demand is accelerating.

Making the strategic choice

On the face of it, it seems that many law firms face a strategic choice between doubling down on counter‑cyclical practices or continuing to prioritize transactional work. Current demand performance suggests counter‑cyclical areas offer the clearer near‑term opportunity — they are growing, resilient, and driven by structural forces such as regulatory scrutiny, workforce disputes, geopolitical risk, and more complex compliance environments.

Further, this environment elevates the importance of pricing discipline. As demand normalizes, clients become more price‑sensitive and will expect efficiency and transparent staffing. Litigation and labor & employment may have more pricing power today, but disciplined pricing across all practices is critical for margin stability.

Indeed, the widening gap between transactional and counter‑cyclical practices signals a market in transition. The opportunity for firms lies in balancing these dynamics and aligning staffing, pricing, and operations to navigate uneven growth and capture value in a more complex legal environment.

You can download theĚýThomson Reuters Institute’s Q4 2025 Law Firm Financial IndexĚýhere

Key insights:

• • • AI can help lawyers prepare better, more relevant client conversations — AI’s real value lies in synthesizing news, regulatory updates, client activity, and relationship data so lawyers have timely, tailored insights that make outreach easier and more meaningful.

    • AI works best as a foundation for client discussions, not a script — Panelists at a recent Forum repeatedly stressed that AI-generated briefs and opportunity matrices should only guide lawyers, but authenticity, experience, and interpretation are still what make client conversations effective.

    • Firms must actively and clearly talk to clients about their AI capabilities — Clients increasingly expect AI-savvy law firms, and those that can confidently explain how AI improves their service offerings while keeping humans at the center will stand out, while silence or vague messaging is a missed opportunity.

AMELIA ISLAND, Fla. — During the Thomson Reuters Institute’s recentĚý33rd Annual Chief Marketing & Business Development Officer ForumĚý(formerly theĚýMarketing Partner Forum), one concept became clear very quickly: When it comes to AI in law firms, the technology itself isn’t the hard part anymore. The real challenge — and the real opportunity — is how firms use AI to deepen client relationships and, just as importantly, how they talk to clients about what they’re doing.

Indeed, more than three-quarters of respondents (77%) say they believe law firms should take the initiative to begin these talks with clients around AI usage, according to the recent Thomson Reuters Institute’s 2026 AI in Professional Services Report.

Across multiple Forum panel discussions, speakers returned again and again to the same idea: AI is becoming a powerful business development engine, but only if lawyers and law firm business development teams are willing to use it proactively and communicate its value in human terms.

AI as an assistant, not a replacement

One of the most practical discussions that arose during the Forum centered on using AI to make client outreach less painful and more effective. Too often, panelists contended, senior lawyers often don’t send regular client notes — but it’s not because they don’t care. These notes get put on the backburner because crafting them takes time away from billable work and is hard to prioritize.

You can find out more about next year’s Chief Marketing & Business Development Officer Forum 2027Ěýhere

Several panelists talked about how AI can change that equation by pulling together information from news coverage, regulatory developments, earnings calls, relationship data, and even what clients are actively reading. Instead of staring at a blank page, partners can walk into a meeting or send a note armed with relevant, timely insights that actually matter to the client, they explained.

“We can plant things in our lawyers’ and partners’ minds to move the needle with clients so they can open conversations with clients that will make a difference,” said one panelist.

Of course, the point isn’t to automate relationships, rather it’s to give lawyers a smarter starting point — a short list of clients to contact, paired with concrete conversation openers that feel tailored rather than generic. “Those conversations and what results from those conversations will be revolutionary for your firm,” the panelist added.

Another theme that resonated at the Forum was the idea of matching client needs with firm capabilities in a much more structured way. AI can help generate documents that clearly show what a client is dealing with and where the firm can help — essentially an opportunity matrix that’s built from real data.

Strong need for lawyer training around AI

Several speakers were quick to stress, however, that this doesn’t mean that AI should be left on autopilot. The best results come when firms train their partners before client meetings, using AI-generated briefs as a foundation, not a script. That balance — between automation and authenticity — came up repeatedly throughout the Forum. As several panelists described, AI can bring insights to the surface, but lawyers still need to interpret those insights, contextualize them, and deliver them in a way that feels personal.

“AI might get you 90% of the way there, but that last 10% still depends on human judgment, experience, and relationship skills,” said one law firm technology specialist.

Indeed, if there was one clear takeaway from the Forum, it’s that AI adoption rises or falls on training. Not broad, one-size-fits-all sessions, but bespoke, one-on-one training that shows lawyers exactly how AI helps them prepare for client conversations. Indeed, several panelists argued that it is essential that firms educate their attorneys on how to use these tools effectively or give them very specific guidance — anything less will lead to hesitation, confusion, or outright resistance.

Of course, the problem is that AI adoption isn’t waiting for everyone to catch up. As one speaker noted, the train is already leaving the station, and those firms that fail to bring partners along — especially by showing clear, practical benefits of AI use — risk falling behind quickly.

In fact, several panelists discussed how the excitement around agentic AI is real, but so are the risks. They warned against assuming these more advanced tools are smarter or more autonomous than they really are. In fact, AI agents are still constrained by the data and tools they’re given, and a flawed understanding at the leadership level can lead to poor decisions and misplaced expectations.

That said, business development was repeatedly described as an ideal starting point for experimenting with agentic AI. The workflows are less rigid or high stakes than agentic use for legal work, the feedback loops are faster, and early wins are easier to spot.

Talking to clients about AI matters

Overall, perhaps the most important takeaway from the Forum wasn’t technical at all. It was strategic.

Because clients are increasingly expecting their law firms to be AI‑savvy, firms have to be proactive in their response. Firms have to not just be using AI internally, but understanding how the technology improves their service, efficiency, and insight. Those firms that can clearly and confidently explain to their own partners and clients how AI supports their best efforts — and where humans still play a critical role — will stand out. Staying silent about AI, or worse, being vague and generic about its value, is a missed opportunity, several panelists explained.

Those law firms that thrive, especially around business development and client service, will be the ones that treat AI not as a back-office experiment, but as a client-facing capability — something to be discussed openly, thoughtfully, and authentically.

You can read the fullĚýExecutive Summary of the Thomson Reuters Institute’s 33rd Annual Chief Marketing & Business Development Officer ForumĚýhere

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2026 Report on the State of the US Legal Market

As the data underpinning the just-released 2026 Report on the State of the US Legal Market — published jointly by the Thomson Reuters Institute and the Center on Ethics and the Legal Profession at Georgetown Law — makes clear, the industry is experiencing its own tectonic moment. Fundamental forces such as shifting client power, economic instability, and technological disruption are pushing some firms to extraordinary heights while leaving others on increasingly unstable ground.

This year’s report examines how the legal market’s current elevation came to be, why it may not last, and what firms can do now to prepare for the inevitable shift.

Key findings in the report

Some of the key findings discussed in this year’s report include:

• • • Unprecedented demand surge amid market redistribution — The US legal market experienced some of the strongest demand growth in more than a decade, driven in part by regulatory shifts and geoeconomic instability. Critically, smaller firms captured the lion’s share of growth as clients moved demand from the most expensive firms to lower-cost alternatives.
    • Intense expense growth — Technology spending and talent costs are rising rapidly, with firms aggressively investing in AI capabilities while simultaneously expanding headcount. This dual arms race is sustainable only so long as demand and rate growth can be maintained as well.
    • Structural business model conflict — The industry remains trapped between transformative technology and outdated billing structures. Despite heavy AI investments that will fundamentally alter how legal work is performed, 90% of legal dollars still flow through hourly billing arrangements that may no longer reflect the value delivered.
    • Deteriorating buyer sentiment — Many corporate general counsels (GCs) are signaling that they are considering significant spending pullbacks ahead, with Net Spend Anticipation dropping to levels not seen since the pandemic. Financial forecasts increasingly point to contraction by mid-2026.
    • Historical warning patterns — Today’s legal market dynamics (represented by booming demand amid instability, runaway expenses, and universal optimism) closely mirror the conditions that preceded previous industry downturns in 2007 and 2021.

As the report makes clear, the challenges ahead are significant. The same forces creating today’s peaks are simultaneously undermining the ground beneath them. The surge in demand stems not from economic health but from chaos — trade wars, regulatory upheaval, and geopolitical tensions — all while GCs face stagnant budgets and intensifying pressure to demonstrate value.

While much of this is outside firms’ control, however, their response to it is not. The report clearly shows that those firms that use the current boom to reinforce their footing by modernizing pricing models, strengthening client relationships, and deploying technology in ways that deliver measurable value rather than marketing gloss will be best positioned for what comes next.

As this year’s report illustrates, 2025 was less a summit than an inflection point. The firms that treat elevation as permanence may find, as countless mountain ranges have over geologic time, that height is not a promise — it’s a phase.

You can download

a full copy of “2026 Report on the State of the US Legal Market,” published jointly by the Thomson Reuters Institute and the Center on Ethics and the Legal Profession at Georgetown Law, by filling out the form below:

Key points:

• • • Reactive service is obsolete — The traditional model of waiting for client problems has reached its expiration date. Proactive, AI-powered monitoring creates entirely new categories of legal value.

    • Consolidation is coming — Within five years, the legal sector will bifurcate between firms embracing agentic AI transformation and those clinging to traditional models.

    • Early adopters set expectations — Firms that deploy AI agents as embedded legal monitoring systems will establish new client expectations that laggards will not be able to meet.

Welcome back to The AI Law Professor. Last month, I explored why asking the question “What if AGI?”Ěýrepresents essential strategic planning for lawyers. This month, I’m examining a transformation already underway: How AI-powered legal risk management systems can prevent problems rather than just solve them, and what this shift means for the lawyer-client relationship.

When every business decision becomes an opportunity for real-time legal insight, the total addressable market for legal services grows exponentially — and AI, especially agentic AI, is going to make this happen at warp speed. Yet, this client-facing and proactive revolution isn’t about replacing lawyers with machines. It’s about reimagining the lawyer-client relationship entirely, moving lawyers from being reactive problem-solvers to embedded strategic partners who prevent issues before they arise.

The end of reactive lawyering

Picture a senior partner at a prestigious law firm, circa 1995, dictating a memo while associates conduct research, mostly by carefully perusing large legal tomes, in the library. Fast forward to today: that partner now types their own emails, the library has become digital databases, and junior associates spend more time with search algorithms than with senior mentors. Yet for all this change, the fundamental model has remained static. Lawyers still react to problems after they arise, bill by the hour, and treat technology as a tool rather than a collaborative method.

We’re standing at the threshold of something fundamentally different. The emergence of agentic AI isn’t merely about making existing processes faster or cheaper. It’s about transforming law firms from reactive advisors into proactive business partners, embedded in the real-time operations of their clients.

Current adoption of agentic AI follows a predictable trajectory. Firms deploy it for high-volume, low-risk tasks, such as document sorting, initial contract reviews, and basic due diligence. However, limiting agentic AI to these mundane tasks is like using a Ferrari to deliver pizza.

The fundamental model has remained static. Lawyers still react to problems after they arise, bill by the hour, and treat technology as a tool rather than a collaborative method.

The real power emerges when we reconceptualize the lawyer-client relationship entirely. Instead of waiting for the phone to ring with the next legal crisis, imagine law firms with AI agents continuously monitoring client operations, analyzing contracts in real-time, flagging potential issues before they metastasize into lawsuits.

This shift from reactive to proactive legal service delivery represents a classic disruption pattern. It doesn’t just improve existing services, rather it creates entirely new categories of value.

The proactive revolution

Here’s a prediction that might ruffle some feathers: Within five years, we’ll witness massive consolidation in the legal sector. However, it won’t follow traditional patterns of big law firms absorbing smaller ones. Instead, we’ll see a bifurcation between those firms that embrace agentic transformation and those that cling to traditional models.

The firms that thrive will look radically different from today’s partnerships. They’ll employ machine learning experts alongside lawyers, and they’ll offer managed services that embed AI agents directly into client operations — and they’ll charge for value delivered rather than time spent. Think of them less like law firms and more like legal technology companies that happen to employ lawyers.

Meanwhile, firms that treat AI as just another tool, that continue billing by the hour while using AI to work faster, will find themselves in a death spiral. They’ll have missed the tipping point when incremental change becomes revolutionary transformation.

Of course, the most exciting possibility isn’t incremental improvement but the creation of entirely new categories of legal value. Imagine a firm that doesn’t wait for contracts to go sour but monitors them continuously, alerting clients to changing circumstances that might trigger renegotiation. Picture legal departments that can simulate the regulatory implications of business decisions before they’re made, running thousands of scenarios through AI agents trained on relevant case law.

The most exciting possibility isn’t incremental improvement but the creation of entirely new categories of legal value.

This proactive model transforms lawyers from fire fighters into strategic partners. It expands the total addressable market for legal services by orders of magnitude. Every business decision becomes an opportunity for legal insight, and every operational change gets real-time analysis. A law firm could offer legal monitoring as a service, with AI agents acting as an always-on legal nervous system for clients.

Once firms start down this path, they’ll find it difficult to reverse course. Early adopters will set new client expectations that laggards simply cannot meet. The competitive advantages will compound over time as firms accumulate data, refine their models, and deepen client integration.

The choice is stark but clear

After decades of building AI tools for legal practice, I’ve learned to distinguish between hype cycles and genuine paradigm shifts. Agentic AI represents the latter. It’s not about doing the same things faster or cheaper; rather, it’s about fundamentally reconsidering what legal services could become.

The firms that will dominate the next era are already experimenting, learning fast, and profiting faster. They’re building products that automate commodity work while developing new service models that were impossible before AI. They’re treating technology not as a threat but as an amplifier of human expertise.

The choice facing today’s legal professionals is clear: Embrace the agentic AI transformation and help shape how AI can change your legal practice, or resist and risk becoming casualties of technological disruption. The medieval guild system of legal apprenticeship has ended — and the age of human-AI collaboration has begun.

Those who recognize this shift, invest in understanding and deploying agentic AI strategically, and reimagine their business models and service offerings won’t just survive this transformation, they’ll thrive.

Indeed, they’ll thrive in ways that would seem like science fiction to that senior partner dictating memos in 1995.

The future of law isn’t about replacing lawyers with machines. It’s about lawyers and machines working together to deliver value that neither could achieve alone. And that future has already begun.

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Well, that brings us to the end of 2025! I wish you and yours a very happy holidays, and I’m excited to see what 2026 brings us. The future looks bright!

Key insights:

• • • Rate growth remains at all-time highs — While this is good news, firms also need to plan for what may lie ahead when that growth cools.

    • Potential financial pressures are acceleratingĚý— Strong demand and rates are driving growth in revenue and profitability, but firms need to keep an eye on realization and expenses which are flashing troublesome signs.

    • A strong 2025 brings no promises for 2026 — This year’s momentum is an opportunity to plan for the next shift in the market.

Many law firms may be preparing to pop champagne corks in a few weeks to celebrate what is shaping up to be a record-setting 2025. As firms close the books on the year, however, it may be prudent to not only celebrate, but also to prepare themselves for potential headaches that could start in the new year after the celebrations die down.

The Thomson Reuters Institute’s recent Law Firm Rates Report 2026 laid out the paradox that is fueling the end-of-year party vibes: Law firms now are enjoying unprecedented pricing power and demand growth; but at the same time, the underlying economics reveal potentially destabilizing pressures that may await them in 2026. And the recent Law Firm Financial Index (LFFI) for the third quarter of 2025 found, those pressures continue to intensify.

Tectonic pressures growing

While the Rates Report raised fundamental questions about what’s driving rates higher and why long-held beliefs about what constitutes better rate performance may be incorrect, the Q3 LFFI likened this year’s surging demand and rate growth to rising tectonic pressures that can both lift mountains but also fracture previously stable ground.

Firms have arguably never had it better when it comes to rates. Worked rates have climbed steadily for the past four years, reaching levels that are not only historical highs, but are also easily outpacing inflation, representing genuine growth in pricing power. Coupled with strong demand, many firms are experiencing a windfall in revenues and profits this year.

And the upward momentum continues to gain strength. Demand growth accelerated to 3.9%, according to the Q3 LFFI, even as worked rates held steady at Q2’s all-time high of 7.4%.

Hiding cracks in the foundation?

Beyond questions about whether the current growth in demand and rates is sustainable, there are signals that the impressive performance may be masking warning signs of potential trouble ahead.

First, expenses are now rising faster than rates, and expense growth is accelerating. Direct costs are up 8.5% year-over-year, while overhead expenses climbed 7.5%, according to Q3 LFFI data. This is an extremely risky proposition because expense growth is generally sticky and hard to control, especially during intense growth periods because firms feel they need to continue feeding the human capital and overhead infrastructure that is driving growth.

However, history teaches a harsh lesson: Revenue can vanish overnight, but expenses rarely do.

Second, realization is wobbling in troubling ways. Firms saw an unseasonal downtick in collection realization in Q2, counter to normal seasonal patterns in which realization typically improves throughout the year. This wobble may feel uncomfortably familiar to anyone who survived the aftermath of the global financial crisis that began in 2007. While Q3 showed some recovery in realization, the long-term trend since 2021 has been a slow decline, which means that despite record standard rate increases, the percentage of those rates actually collected continues to erode.

Third, work continues to shift down market. The Rates Report noted that corporate clients with annual revenues of more than $10 billion saw their effective paid rates decline at a double-digit rate in 2025, even as law firms reported average worked rate increases of 7.4%. This reflects how price-sensitive matters had been shifted towards smaller, lower-cost providers while the largest firms seek to retain higher value work.

The challenge then becomes for law firms to identify which matters justify premium pricing and which are vulnerable to downstream migration. Strategic partnerships with smaller firms or alternative legal providers could potentially be an avenue for larger firms to retain client loyalty while protecting their margins.

Looking ahead

While many law firms are enjoying the fruits of a bountiful 2025, it’s not too early for firm leaders to turn their attention to 2026 and determine what their strategies will be. This is no time for complacency or an assumption that next year will merely be a replay of 2025. Instead, firms need to start mapping contingency plans in case demand or pricing falter, expense growth accelerates further, or work continues to flow downstream to lower-cost law firms.

The flashing lights in the distance may turn out to not be celebratory holiday displays but rather caution signs that lie in wait for the year ahead. The warning lights aren’t showing red yet, but they’re definitely moving from a festive green to a cautionary amber.

You can download a copy of the Thomson Reuters Institute’sĚýLaw Firm Rates Report 2026 here

Key insights:

• • • Advisory is becoming the strategic core of tax practices — Tax firms are no longer treating advisory services as an add-on to compliance work but rather as a fundamental driver of business strategy, client relationships, and sustainable revenue growth.

    • Frequent client engagement drives measurably better outcomes — Professionals from firms that meet with clients quarterly or more frequently report significantly higher satisfaction across every dimension.

    • Technology and capacity are the keys to breaking through barriers — Firms are rapidly adopting automation to free up their professionals for advisory work, while addressing staff skills gaps through training and strategic hires.

For decades, tax firms built their practices around the predictable calendar of the annual compliance cycle, punctuated by occasional client requests for advice. Over the past five or more years, however, there’s been a seismic shift. Tax advisory services are emerging as the defining strategic function within successful firms, and it’s being driven mostly by an unprecedented convergence of regulatory complexity, technology capabilities, and evolving client expectations.

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2026 Tax Firm Advisory Services Report

As a result, many firm leaders are fundamentally rethinking their business models, reimagining what a tax practice can be as they move from being transactional service providers to becoming more strategic advisors that can guide clients through complex financial decisions year-round.

To delve into this deeper, the Thomson Reuters Institute has published the 2026 Tax Firm Advisory Services Report, that clearly shows that as regulatory complexity and client expectations mount, firms that systematically invest in building advisory capabilities are outperforming their peers by significant margins — and the performance gap is widening.

From compliance shop to strategic advisor

For tax firm leaders, this transformation represents both validation and opportunity. The numbers tell a compelling story, especially for firms that are proactively leading the strategic elevation of their advisory capabilities. Among surveyed respondents from firms experiencing revenue growth, 88% report that advisory revenue is growing faster than compliance revenue and that advisory services now represent an average of 31% of total firm revenue.

Not surprisingly, many forward-thinking firms are backing this shift with concrete plans. Nearly 9-in-10 respondents say their firms are planning to expand their advisory services within the next year.

The engagement advantage

What’s driving this transformation? According to the report, the quality and frequency of client relationships have fundamentally recast what’s possible in tax advisory services. Firms that meet with clients quarterly or more frequently see dramatically different outcomes than those meeting clients just once or twice a year.

Tax professionals from firms with quarterly touchpoints rated their own satisfaction significantly higher across every dimension measured, such as knowledge of the client’s business, understanding the client’s industry sector, the overall strength of the client relationship, and the range of services the client uses. Even more compelling, almost 90% of respondents from firms with more frequent client engagement report that advisory revenue growth is outpacing compliance growth compared to just 65% of respondents from firms with less frequent client contact.

As the report underscores: This message is unmistakable — relationship depth directly drives revenue growth. Firms that use quarterly or more touchpoints with clients are more successfully converting compliance-only relationships into comprehensive advisory partnerships at substantially higher rates than their less-engaged competitors.

The challenging landscape

Despite the opportunities that abound in advisory services, many firms face real obstacles in expansion, the report shows. More than half (52%) of respondents cite staff skills gaps among their colleagues as their biggest challenge, followed closely by client resistance to paying for advice (47%).

These challenges create a reinforcement loop that can trap firms in their current state: Staff lack advisory skills, so they focus on compliance work, leaving no time to develop advisory capabilities or engage clients proactively. Then, clients don’t see the value of advisory services because they haven’t experienced them, and the cycle continues.

Breaking this loop requires intentional strategy and systematic execution — which is exactly what leading firms are doing differently, the report shows.

How strategic priorities are reshaping the profession

The ripple effects from this advisory transformation have dramatically reshaped strategic priorities for tax firms beyond routine concerns about service expansion. These new priorities represent fundamental shifts in how firm leadership view the purpose of their firm, its client relationships, and competitive positioning.

Interestingly, while revenue objectives dominate the top priorities, 13% of firm leaders cite developing more intellectually stimulating work for their teams as a key objective, the report shows. This speaks to a deeper strategic consideration — that advisory work itself offers the kind of challenging, engaging work that attracts and retains top talent in an increasingly competitive labor market.

Today, the opportunity is here for tax firms to capitalize on this momentum and operationalize their advisory services offerings through formalized processes, systematic client engagement, technology leverage, and value-based pricing that creates enduring competitive advantages.

As the report shows, tax advisory today is moving beyond simply offering occasional consulting services alongside compliance work. And with the strategic elevation of tax advisory services already underway, it’s those firms that move quickly enough to capture the opportunity that will flourish.

You can download

a full copy of the Thomson Reuters Institute’s “2026 Tax Firm Advisory Services Report” by filling out the form below: