What do trailer parks, hospitals, prison services, and accounting firms have in common? Private equity (PE) has acquired a stake in all of them—and it’s not stopping there. From 2023 to 2024, PE firms closed $565 billion in announced deals, a 25% increase in value. With so much capital in play, PE is ever on the lookout for its next conquest—and now it has set its sights on a domain long considered off-limits: law firms. Historically, regulatory and ethical barriers have kept non-lawyer investors out of the legal industry. Yet if there’s one thing we know about PE, it’s that where big money stands behind a closed door, they will find a way to pry it open.
PE potentially views law firms as a way to “print money.” As David Marcus writes in The Allure of Law Firms for Private Equity, “Recent investments by [PE] in accounting firms suggest PE would find attractive targets in the legal profession if more state bar associations allow nonlawyers to own stakes in law firms.” Indeed, over the past few years, PE sponsors have acquired major stakes in several top accounting firms, including one deal that reached a valuation of $2 billion. Law firms, like these accounting firms, have “reliable cash flows and low capital expenditures,” making them prime candidates for PE. However, one thing stands in PE’s way—the American Bar Association (ABA).
The ABA, whose legal standards most states follow, created Rule 5.4—formally titled “Professional Independence of a Lawyer”—to ensure that client interests, not outside investors, dictate legal decisions. By prohibiting fee-sharing and partnerships with non-lawyers, the rule aims to maintain broad ethical standards and foster public confidence that legal advice remains free from business imperatives. It also protects client confidentiality by preventing outside stakeholders from accessing sensitive information. The core idea is that without external investors, lawyers are bound solely to provide high-quality, conflict-free representation—not to maximize returns for shareholders.
Yet critics of Rule 5.4 argue it’s a double-edged sword: While it guards against undue profit-driven influence, it also prevents law firms from tapping outside capital. Scholars at Stanford Law point out that the United States, despite hosting one of the largest pools of lawyers in the world, still ranks abysmally—109th out of 128 countries—in access to affordable civil legal services. They see Rule 5.4 as a prime suspect, explaining that the lack of external funding leads to limited investment in various areas, such as new technology solutions, streamlined business structures, and wider consumer outreach. Tom Lenfestey of the Law Practice Exchange agrees that sponsor-backed funding could modernize firms and improve services for underrepresented clients. Meanwhile, PE firms see themselves as the ones capable of bringing these efficiencies to the legal field, but only if Rule 5.4 is reformed.
Advocates for reform can now point to the last few years for evidence that Rule 5.4 is unnecessary, with states like Arizona and Utah successfully bypassing it. In 2020, Utah launched a regulatory sandbox, allowing non-lawyers to hold ownership stakes under close judicial oversight. The program has proven successful enough that the Utah Supreme Court extended it through 2027. Arizona went even further by eliminating its ban on non-lawyer ownership of law firms. Under its Alternative Business Structure (ABS) framework, approved entities must meet stringent requirements such as licensing, malpractice insurance, and background checks on owners to ensure professional standards remain intact. So far, over 100 ABS licenses have been granted, reflecting Arizona’s enthusiasm for this new model. Proponents say such reforms could help expand access to legal services and lead to lower legal fees through expanded legal access. For now, though, Rule 5.4 still holds in most U.S. jurisdictions, keeping PE’s capital, expertise, and ambitions largely at arm’s length.
At first glance, loosening Rule 5.4 seems promising: Let outside investors pour in capital, achieve economies of scale, and serve the communities we’ve historically neglected. But if PE’s track record in healthcare and accounting is any guide, there’s also an alarming side. A 2023 study has even shown that Medicare patients at PE-owned hospitals suffered a 25% increase in complications, and many accountants lament losing their independence. Why would lawyers be immune? If non-lawyer owners offer large buyouts to senior partners, firms could soon be hardwired to prioritize maximizing returns over their duty of loyalty to clients.
Yet a total meltdown isn’t guaranteed. Arizona and Utah have tested regulatory sandboxes and Alternative Business Structures, and so far, there has been no wave of ethical collapses. Moreover, not every PE fund is incentivized to focus only on maximizing profits, like in dentistry, where PE firms have preferred generating steady returns and cultivating a mutually beneficial relationship where they help manage the nonclinical aspects of the practice.
That’s the tension: Rule 5.4 has shielded client interests from outside meddling for decades. However, critics argue that it stifles innovation, pushing America’s legal costs so high that it’s 109th worldwide in affordability. So, do we commence reforms despite the risk of replaying a corporate exploitation script?
It all depends on the details of any reform. Tear down Rule 5.4 wholesale, and sure, we could see cynical cash grabs, gutted ethics, and vulnerable clients left behind. But it’s naive to pretend existing ethics rules can fix the dearth of legal access, especially when in 2023 alone, of the 55% of Californians who experienced a civil legal problem, only 30% received legal assistance. If Arizona and Utah’s experiments hold up—if real guardrails keep investors from hollowing out the soul of legal practice—maybe we can harness new capital and provide the American public with better access to legal services.
In short, Rule 5.4 isn’t just an “obstacle,” nor is its reform a “silver bullet.” It’s a decades-old ethical foundation that deserves scrutiny and shouldn’t be dismantled without care. Whether the drumbeat of expanding legal access is just a Trojan horse for corporate profit or a legitimate reform that could lift more boats ultimately depends on us: how we write the regulations, how we hold investors accountable, and how we preserve the independence and integrity of law as a profession.