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Lawyers don't get a whole lot of love here at WallStreetOasis -- and perhaps we finance guys aren't exactly revered over at jdOasis either. Regardless, there are an awful lot of law-related topics here on WSO, with it being a career path that has traditionally offered similar pay, similar prestige, and -- not sure who'd want it exactly, but -- similar hours.

But, as many of you know, the "legal profession" is currently in shambles. A myriad of kids are going to law school because they have, quite literally, nothing else to do after finishing undergrad, and even a T14 (hell, even YLS) education doesn't guarantee a cushy spot for you in Big Law with that $160K compensation package. Those who do get the job seem to have less of a guarantee of not getting laid off than people in banking, and there aren't exactly many exit opportunities from the Big Law lifestyle.

Well, perhaps there is change that we can believe in with respect to the legal profession.

There was a couple of solid articles about changing the legal profession in last week's issue of The Economist. One discusses the time spent in law school and whether 3 years are completely necessary, and the other discusses increasing competition by allowing private investors access to equity in law firms.

If you don't want to read these guys (you should, they're both great articles), I'll boil it down for you here:

1. Law school is incredibly expensive

The average law student takes out over $100,000 in debt to finance his or her law education, often-times on top of already-existing debt from undergrad. Although I have no empirical evidence to back up the next claim, I'd also wager that a solid chunk of law students majored in the liberal arts and do not have much earning potential outside of a professional degree.

All of this debt means that the price of legal services -- you know, for all of us regular folk -- is inflated. NYU Law has recently been considering allowing students to sit for the bar after 2L, and some firms have been open to the thought of hiring students after 2L, allowing people to forego 3L and save a significant chunk of change. This could be a positive first step, one that could even lead to an undergraduate "law degree" (something like a five-year program, as opposed to a seven-year one).

2. Allowing outside individuals access to equity in a law firm is a positive

Here's the aspect that relates more to the finance world -- giving people the opportunity to invest directly in law firms. Law firms have always given equity access only to partner-level individuals in the firm, under the belief that a law firm cannot be subject to the scrutiny of shareholders because lawyers should not be pressured to make profits.

There's currently a lawsuit in which law firm Jacoby & Myers, if it wins, would be allowed to issue equity to non-lawyer investors in New York, New Jersey, and Connecticut. The additional capital would allow the firm to upgrade technology and take advantage of scale, giving people cheaper access to legal services. Legal services are currently billed on a per-hour basis which does not always (haha) incentivize efficiency -- shareholder scrutiny could be the firm step to making leaner, meaner, and less expensive law firms a reality. Which is a must, considering legal services today are at ~160% of 2001 levels while the CPI is only at 130% of 2001 levels.

I think lawyers are kidding themselves when they say there is less pressure to make money now than there would be if non-lawyer investors played a role -- obviously there is a huge incentive to make a lot of money and take on clients who can pay. However, the additional capital could work wonders for law firms, if equity-ownership is allowed from the outside.

What do you guys make of this? Should there just be an undergraduate law degree? Should people be allowed to practice after 2 years? How do we fix the problem of overly-inflated prices for legal services? The justice system is already a complete mess on the government side of things -- shouldn't we at least try to lessen the burden for individuals with limited access to legal services on the professional side?

Thanks for reading.

Comments (12)

  • Vi's picture

    Law guy here. You are "prepared" to sit for the bar after 1.5-2 years of law school.

    I originally went to law school because I was interested in the law side of securities work, but after spending one summer on the legal side of securities work and another at an investment bank I prefer the finance side.

    I don't recommend law school to anyone who has to pay sticker price, unless you go to Yale, Harvard, Stanford, or a comparable. Breaking into law from a non-target is exponentially more brutal.

    Just a collection of thoughts.

  • coleslaw's picture

    What would be the best type of law to go in an work in the fiancial field Vi?

    "Those who dare to fail miserably can achieve greatly"

  • CountryUnderdog's picture

    Current JD/MBA at top program. Was a SA in M&A for Biglaw (V5) last summer. Wanted to kill myself. Back to IB.

    But to answer your question:

    Yes, I believe you are qualified to sit for the bar after 2l. The mantra is 1L they scare you, 2L they work you, and 3L they bore you. The only problem is that biglaw hiring is entirely based off of grades -- namely your 1L grades. After 1L summer you interview, get a SA for your 2L year, and get an offer from that (unlike banks, biglaw firms have near 100% offer rates due to the risk aversion of law students and potential pedigree "bashing" that could occur if a firm were to no-offer other than for egregious reasons). So if you were to shorten it to 2 years, that would mean you would need to get the SA for 1L summer, which would mean that you would (I suppose) interview in the Spring and only have 1L fall grades to present. That may not be a bad thing, but it is just an interesting thing to note. Also, unless you've been through 1L you really can't understand the stress and importance of good grades.

    In regards to ownership, I don't see any problem with it, and in fact the D.C. bar allows for non-lawyer ownership in law firms and there has been no noticable impact. Note that lawyers have model ethics rules for each jurisdiction (e.g. state), and most have a rule that bars non-lawyer equity ownership in law firms, so you would need each state to independently amend there model rules in order to make this viable.

    However, I don't think either of these will occur for the following reason: lawyers and law schools like money. 2 years is less tuition than 3 years, and non-lawyer ownership means less money for lawyers.

    "They are all former investment bankers that were laid off in the economic collapse that Nancy Pelosi caused. They have no marketable skills, but by God they work hard."

  • In reply to coleslaw
    CountryUnderdog's picture

    gregdslawson wrote:
    What would be the best type of law to go in an work in the fiancial field Vi?

    It depends. Generally you could answer with the corporate department obviously. If you want compliance, it may not matter as much, but a background in securities law may be helpful. On the other hand, if you want to become a banker, working in M&A or antitrust could be valuable.

    "They are all former investment bankers that were laid off in the economic collapse that Nancy Pelosi caused. They have no marketable skills, but by God they work hard."

  • CaR's picture

    I'm curious to know what you mean by "lack of exit opportunities from big law," or at least where you drew that conclusion from. One of my dad's partners left the firm five or so years ago to found a middle market investment bank specializing in healthcare; another partner, also in M/A, left just a few months ago to become a partner at a SF private equity firm. Countless numbers of associates/partners have gone to join F100 firms. If you look at company in almost any industry's executives, my bet is that at least one--or more--has a j.d.

    Now, I by no means think law school is a wonderful investment for all; I think it's highly subjective, and these days, there are kids from Harvard Law not making associate at firms, making it all the more competitive and nonsensical for certain candidates. There are endless drawbacks to that career path, but especially in relation to finance, "no exit opportunties" is certainly not one of them.

  • In reply to coleslaw
    Vi's picture

    gregdslawson wrote:
    What would be the best type of law to go in an work in the fiancial field Vi?

    This is a nebulous question. My best answer would be wherever you can get a job. It's really all about the hustle though. I have friends across the spectrum of "finance" lawyers. The most successful ones run their own shop of 1-5 attorneys doing securities litigation, like FINRA disputes.

    A simplified version of what they do...

    Investor loses $500,000 due to "fraud" or "misrepresentation" by a broker. Investor hires attorney to recover some of his lost investment. Attorney sues the broker and they go through FINRA resolution (this is not a part of the court system). Attorney and broker almost always settle for a % of the original amount lost based on how strong the case for "fraud" or "misrepresentation." Say, in our example, attorney gets $100,000 back for his client. Attorney will charge the client anywhere from 20-30% and that will be the attorney's fees.

  • FrankD'anconia's picture

    There is a very positive correlation between amount of lawyers being pumped into the system, and the amount of frivolous legal bullshit that churns up in court imo. There is only so much "legitimate" legal work out there to go around. Once you have more lawyers than needed to take care of that, you start getting these guys essentially begging you to call them because "you may have a case". You can't even watch TV nowadays without seeing this shit in action. I suppose increasing the cost of tuition would be one way to keep this oversupply under control.

    Also, allowing investors to have equity in law firms is just an atrocious idea imo. Cases should basically come at a natural level to you. There is a pretty obvious problem surrounding a firm which "needs" more cases to come their way in order to keep investors happy.

  • West Coast rainmaker's picture

    For a risk averse profession, there is a ton of risk associated with law school. I wanted to be a lawyer before I got interested in finance (I think I actually found out about banking through a link to Mergers & Inquisitions on Abovethelaw.com). But the outcomes are almost binary: great success or poverty.

    You need to kill the LSAT on your first shot, then get accepted into a top school. Otherwise, you an English major with a 3.9 GPA. And the LSAT is not a particularly "prep-able" test. A lot of people sink 100s of hours into studying, and still can't break 170.

    Then you need to do very well your first semester to lock up an internship/law review. And law school grading, as far as I can tell, borders on random and is almost 100% dependent on your final.

    Finally, you need to lock up a clerkship or BigLaw job, both of which are very competitive even at top schools. Law firms seem more resistant to networking than banks, instead hiring based on grades. This seems bizarre, given how little law school relates to the practice of the law, but who am I to question their wisdom? There is very little room to differentiate yourself. I was a pretty good student in undergrad, but I put in a fraction of the time the most studious students did. I don't want to compete with them in a 3 year memorization marathon.

    If you fail at any of the above points, you have 180k of debt and a 60k per year salary. Even a profession as volatile as finance seems like a surer bet.