The author of this article looks at "Alternative Business Structures" and developments in Arizona and KPMG, opening the way for ABS moves to follow.

This article, from regular FWR contributor and editorial board member Matthew Erskine (pictured below), focuses on a new development affecting legal and financial services in the US. The editors are pleased to share these insights; the usual editorial disclaimers apply. To join the conversation, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com.
 

Matthew Erskine

In a significant shift for the legal and financial services landscape, KPMG Law US has applied for an Alternative Business Structure (ABS) license in Arizona. If approved, KPMG would become the first of the Big Four accounting firms to establish a law firm in the US. This move underscores a broader trend of integrating legal, tax, and financial services under one umbrella – raising critical questions about the future of estate planning, wealth management, trust administration, and succession planning for family businesses.

The potential ripple effects extend far beyond KPMG. If banks, multi-family offices, and wealth managers follow suit by obtaining ABS licenses specifically aimed at trust and estate law, the industry could face a paradigm shift, altering competitive dynamics, ethical considerations, and client service models.

The Arizona ABS model: A legal industry disruptor
Arizona’s decision in 2020 to eliminate Rule 5.4 – which had long prohibited non-lawyers from owning stakes in law firms – paved the way for an innovative ABS licensing program. This regulatory change enables multidisciplinary firms to integrate legal services, provided they meet ethical and operational compliance requirements.

Since its inception in 2021, Arizona’s ABS program has primarily attracted legal technology firms and alternative legal service providers. KPMG’s recent application, however, signals a major evolution – one that could accelerate ABS adoption among financial services firms looking to embed legal expertise into their offerings.

The competitive impact on trusts, estates, and family businesses
For traditional trusts and estates law firms, the prospect of competing with multidisciplinary firms like KPMG is daunting. If KPMG’s application is approved, it would have the capability to bundle estate planning, tax structuring, and wealth advisory into a seamless service, leveraging its deep global expertise and extensive client network.

1. Integrated service models: A threat to traditional firms?
Historically, high net worth and ultra-HNW families, as well as owners of family businesses, have relied on a constellation of advisors – lawyers, accountants, investment managers, and trust officers – to manage their estates and business succession plans. A successful ABS model would consolidate these services under a single corporate structure, potentially offering greater efficiency and cost savings.

If wealth managers, banks, or multi-family offices were to obtain ABS licenses, they could expand their offerings to include estate planning and trust services without relying on external law firms. This would be a direct challenge to traditional boutique estate planning practices, forcing them to either innovate or risk obsolescence.

2. The ethical dilemma: Lawyer independence vs business synergy
The ABS model raises ethical concerns, particularly in estate planning and business succession planning, where fiduciary duties and client confidentiality are paramount. Critics argue that allowing non-lawyers to own legal service providers could compromise lawyer independence, potentially prioritizing profitability over ethical obligations.

Conversely, proponents suggest that increased competition will drive better client service, enhanced transparency, and more accessible legal support, especially for middle-market clients who may not traditionally engage with high-end law firms. Also, the firms remain bound by the ethical obligations of Rules 1.1 and 1.7. 

3. The banking and wealth management play: A new revenue frontier
While no major US banks, wealth management firms, or multi-family offices have yet applied for an ABS license, the model presents a compelling business case. If these firms were to obtain ABS licenses, they could offer:

-- In-house estate planning, trust formation, and business succession planning without outsourcing legal work; 
-- Comprehensive wealth and legacy planning services under one regulatory umbrella; and 
-- A one-stop-shop for HNW and UHNW clients, enhancing client retention and cross-selling opportunities.

Banks and multi-family offices already manage trust assets, but the inability to offer integrated legal services has been a limiting factor. ABS licensing would remove this barrier, potentially reshaping how trust, estate, and business succession services are delivered.

ABS licensing expands beyond Arizona
Arizona is not the only jurisdiction embracing the ABS model. Several other states and regions have also experimented with or implemented alternative ownership structures for law firms:

-- Utah: Launched a regulatory sandbox in 2020 that permits non-lawyer investment and ownership in law firms. This initiative aims to increase access to justice while allowing firms to explore innovative business models; 
-- District of Columbia: Has allowed non-lawyer partners in law firms since 1991, provided that they actively assist in delivering legal services. This model, though limited in scope, has enabled some multidisciplinary structures; 
-- Washington State: As of 2024, Washington is considering a pilot program that would loosen restrictions on legal service delivery, potentially allowing financial services firms and other entities to practice law under limited regulatory oversight.

These developments suggest a growing openness to alternative business models in legal services. While most US states still prohibit non-lawyer ownership of law firms, Arizona, Utah, and Washington are testing the waters, and their experiences could inform future reforms across the country.

Insights from ABS models in other jurisdictions
The impact of ABS licensing has been studied extensively, particularly in the UK, where the Legal Services Act of 2007 allowed non-lawyer ownership and external investment in law firms. The UK experience provides insights into both the opportunities and challenges that ABS models may present in the US:

-- Organizational changes: ABS firms have adopted various structures, including multi-disciplinary practices and greater external investment, leading to a shift away from traditional law firm models (1);    .
-- Improved legal services: Access to external capital has enabled ABS firms to invest in employee development and technology, increasing efficiency and service quality (2); and 
-- Market competition and consumer choice: The introduction of ABSs in the UK expanded consumer choice and increased competition, allowing well-capitalized firms to enter the legal market (3); 
-- Risks and ethical concerns: Critics argue that ABS firms may prioritize profit over public service responsibilities, such as pro bono legal work and legal system improvements (4); and 
-- Impact on traditional firms: Some traditional firms see ABSs as a threat, while others leverage the model to strengthen financial stability and expand service offerings. The trend toward consolidation could reduce consumer choice in the long run (5).

These findings suggest that while ABS licensing offers significant potential for innovation, it also necessitates careful regulatory oversight to ensure consumer protection and ethical integrity.

Implications for UHNW clients and family business owners
UHNW individuals and family business owners require sophisticated estate and succession planning to preserve wealth and ensure smooth transitions across generations. The introduction of ABS-licensed entities into this space could fundamentally alter how they approach these critical issues.

1. More convenience, but potential conflicts of interest
-- Integrated legal, financial, and tax services could simplify estate and business succession planning; 
-- However, firms with ABS licenses could be incentivized to cross-sell financial products, raising concerns about conflicts of interest; and 
-- Clients who value independent legal advice may resist using ABS firms tied to financial institutions.

2. Advanced estate and succession planning strategies
-- ABS firms could leverage AI and analytics to develop sophisticated tax and estate planning strategies; 
-- Business owners could benefit from real-time succession planning simulations; and 
-- This could enhance tax efficiency as firms integrate legal, financial, and investment strategies.

3. The family office shift
-- Multi-family offices (MFOs) could bring estate and business planning in-house under ABS licensing; 
-- Single-family offices (SFOs) may consider structuring their own ABS firms to retain control over legal services; and 
-- This would reduce reliance on external estate planning attorneys, shifting the balance of power.

Looking ahead: A tipping point for estate planning and family business succession?
KPMG’s move into the ABS space is just the beginning. If its application is approved, it could prompt a wave of similar applications from financial institutions, setting a precedent for a fundamentally different legal and financial services ecosystem.

As Arizona’s ABS experiment unfolds, other states may follow suit. Whether this development improves access to justice and client outcomes – or introduces conflicts of interest and ethical challenges – remains an open question. But one thing is certain: the estate planning and business succession landscape will never be the same.

Footnotes
1,  Aulakh, S., & Kirkpatrick, I., 2016. Changing regulation and the future of the professional partnership: the case of the Legal Services Act, 2007 in England and Wales. International Journal of the Legal Profession, 23, pp. 277 - 303. https://doi.org/10.1080/09695958.2016.1214135 
2,  McMorrow, J., 2016. UK Alternative Business Structures for Legal Practice: Emerging Models and Lessons for the US. English Law: Public Law (Topic).
3,  King, I., & Edwards, C., 2013. Alternative Business Structures: A Brave New Legal Services World?. **.
4,  McMorrow op cit. 
5,  King, I., & Edwards, C., 2013. Alternative Business Structures: A Brave New Legal Services World?. **.