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 United States. 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, multifamily 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 (HNW) and ultra-high-net-worth (UHNW) 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 multifamily 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 obligations of the Arizona Rules of Professional Conduct 1.1 (Competence) and 1.7 (Conflicts of Interest).
3. The Banking and Wealth Management Play: A New Revenue Frontier
While no major U.S. banks, wealth management firms, or multifamily 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:
Banks and multifamily 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:
These developments suggest a growing openness to alternative business models in legal services. While most U.S. 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 U.S.:
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
2. Advanced Estate and Succession Planning Strategies
3. The Family Office Shift
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.
[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?. **.
[5] King, I., & Edwards, C., 2013. Alternative Business Structures: A Brave New Legal Services World?. **.