Key takeaways:

• • • New Zealand legal market achieves revenue and profit growth 鈥� A new TRI report on the New Zealand law firm market shows firms rebounding strongly from the pandemic, with firm revenue and profits up impressively.

    • Transactional and counter-cyclical practice demand drives success 鈥� More than half of the legal demand for New Zealand law firms comes from transactional work, which rose of the past year; meanwhile, counter-cyclical practices saw even higher growth rates.

    • Managed expenses and increased partner utilisation boost profit margins 鈥� Despite rising expenses due to technology and knowledge management investments, New Zealand law firms maintained manageable costs and increased equity partner utilisation.

For New Zealand law firms, years of careful investment and strategic pandemic recovery have paid off. Today, strong demand has vaulted firm revenue growth above double digits, leading to profits not seen among New Zealand firms since the early days of the pandemic, according to a new report from the 成人VR视频 Institute (TRI) and data from TRI鈥檚 .

Jump to 鈫�

2026 Report on the State of the New Zealand Legal Market

Demand at New Zealand law firms rose more than 5% last year, following stagnant or decreasing growth rates between 2022 and 2024, according to TRI鈥檚 2026 Report on the State of the New Zealand Legal Market. As a result, overall firm revenue rose by more than 10%, placing it back near pre-pandemic levels. Coupled with managed expense growth, New Zealand law firms saw their first double-digit profit growth since 2021, after declines in demand for transactional practice work scuttled profits in 2022 and 2023.

Overall, more than half of the legal demand for New Zealand law firms comes from transactional work such as corporate general and M&A practices; and indeed, demand for such work rose last year after seeing only modest growth or declines in the the years prior. However, the report shows that even more notable is the rise of demand in counter-cyclical practices such as disputes & litigation, insurance defense, and workplace relations. The growth rate of counter-cyclical demand topped that of transactional demand in the second quarter of last year and continued to separate itself throughout the remainder of the year.

At the same time, firms continued to enjoy steady rate growth, with their worked rate growth over this past year coming close to their average rate growth than was seen from 2022 to 2024.

Interestingly, this represents a different strategy by New Zealand firms, compared to those in the United States or Australia, to capture profits through other means while keeping their rate increases manageable. And indeed, while Australian and US firms have largely seen falling utilisation, New Zealand equity partners averaged more hours worked per month in 2025 than they did the year prior, which helped to drive higher revenues.

Meanwhile, total expenses ticked up slightly last year compared with 2024, with both direct expenses and indirect expenses rising. However, much of this growth in indirect expenses is largely due to increased investments in technology and knowledge management, an increasingly necessary expense in the age of AI.

As a result of the demand rebound and more manageable expenses, New Zealand law firms are seeing their revenues and profits soar.

Overall revenue more than doubled, percentagewise, in 2025, which in turn directly led to sky-high profits in 2025 that were almost triple what they were the year prior. Profit per equity partner also saw similar gains.

Overall, New Zealand law firms on average largely held steady with a profit margin around 43%, while some firms saw profit margins soar above 50%.

As the report shows, all of this represents a very positive financial picture for New Zealand law firms. The return of demand, steady rate growth, and managed expenses has provided firms a solid footing from which to grow further. And if New Zealand law firm leaders can build on those positive metrics, they look poised to take these gains and grow further in 2026.

You can download

a full copy of the 成人VR视频 Institute’s “2026 Report on the State of the New Zealand Legal Market” by filling out the form below:

You can read TRI鈥檚 latest 鈥淚nside the Shift鈥� feature,听The AI adoption board game: Why law firm leaders can’t afford to play it safe here

Let鈥檚 be honest: most law firms know AI is a big deal. They鈥檝e read the headlines, attended the conferences, and nodded along when someone says, 鈥淎I will change everything.鈥� The problem? Knowing that AI matters and actually doing something strategic about it are two very different things. And according to our latest Inside the Shift feature article, that gap is where many law firms are starting to lose ground.

Our latest Inside the Shift feature, author Michelle Nesbitt-Burrell, Marketing Strategy Director for 成人VR视频 (TR), frames AI adoption as a boardgame that鈥檚 already underway. Some law firms are moving confidently across the board, while others are stuck on the starting square, not because they don鈥檛 see the future, but because they鈥檙e hesitating. The latest TRI research shows that while the majority of lawyers say they believe AI will fundamentally transform the legal industry within the next few years, far fewer expect real change inside their own firms anytime soon. That disconnect is risky 鈥� especially when competitors and clients aren鈥檛 waiting around.

Here’s what should concern every law firm partner 鈥� corporate legal departments aren’t just playing the same AI adoption game, they’re winning it.

 

One of the most uncomfortable truths the article reveals is that corporate legal departments are further often ahead on AI adoption and utilization than their outside counsel. In fact, many corporate legal teams are investing in AI faster and using it more deeply in their day鈥憈o鈥慸ay legal work. That means clients are reviewing contracts faster, doing more work internally, and increasingly judging their outside law firms on their technological sophistication. In a world like that, the excuse that We鈥檙e still experimenting stops sounding reasonable pretty quickly.

The article breaks law firms into three players on the game board:

1. 1. 1. 1. 1. The laggards 鈥� Those firms with no meaningful AI plans and very little ROI to show for it.
            2. The adopters 鈥� Thos firms that are experimenting with tools but don鈥檛 really have a clear strategy. These firms see some efficiency gains but too often hit a ceiling.
            3. The innovators 鈥� Those firms with visible, intentional AI strategies. These firms are far more likely to see ROI, revenue growth, and long鈥憈erm competitive advantages.

So, what separates the winners from everyone else? The article details the PLAYERS framework: pilot with purpose, leadership that sets the pace, action over perfection, strong ethics, serious education, good data, and 鈥� most importantly 鈥� strategy before tools. In other words, those law firms that want to become innovators should stop asking, What AI should we buy? and start asking What are we actually trying to achieve?

Clearly, AI isn鈥檛 a side project anymore. Law firms that treat it like one may save some time, but as the article fully explains, those firms that approach AI adoption and implementation strategically will reshape how legal work gets done. The game is already moving 鈥� the only question is whether your firm is playing to win or quietly falling behind.

You can find more听Inside the Shift feature articles听from the 成人VR视频 Institute here

Key insights:

• • • There鈥檚 an AI awareness gap 鈥� Most corporate legal professionals do not know whether their outside legal counsel are using AI in handling their client matters, leaving both law departments and their firms in a state of AI uncertainty.

    • A potential upcoming billing model shift 鈥� Efficiencies from AI usage could have a major impact on how many law firms bill matters; value-based billing may need to replace or supplement hourly billing for matters in which AI is used.

    • Transparency builds trust 鈥� Lack of visibility and ROI measurement could erode trust between law departments and their outside counsel. Dialogue and measurements can strengthen the firm/client relationship and create scenarios in which both sides can reap the benefits of AI usage.

While the use of AI is increasingly widespread for both corporate legal departments and their outside law firms, there is a considerable lack of dialogue and data-sharing between the two sides on usage, guidelines, and expectations regarding AI. This complicates efforts to maximize the benefits of using AI, and it also may be eroding trust between the two sides.

Significant gaps in visibility and measurement

The 成人VR视频 Institute鈥檚 (TRI鈥檚) 2026 AI in Professional Services Report found major gaps in visibility and measurement between law firms and legal departments. The survey found that more than half of law firm respondents said their organizations are currently using or considering using GenAI. And more than half of corporate legal professionals surveyed said they feel that their outside legal firms should use AI on their matters.

However, more than two-thirds (68%) of corporate legal professionals admitted that they currently have no idea if their outside law firms are using AI or not.

In addition, neither side is effectively measuring whether or to what degree their use of AI is improving the delivery of legal services. Indeed, 85% of law firm respondents and 75% of corporate legal department respondents said their organizations are either not collecting ROI data on AI usage or are unsure if they are doing so.

Is your organization measuring the ROI of AI tools?

These visibility and measurement gaps make it difficult for both sides to plan how AI can and should be used in handling client matters. It also raises questions about how potential efficiencies from AI use will affect related factors such as how much firms charge for their services and how much clients are willing to pay. Half of legal professionals surveyed said they feel that AI is either a major threat or somewhat of a threat to billings and law firm revenues. Not surprisingly, the industry continues to wrestle with how to balance efficiency gains from AI against the limitations of the hourly billing model.

Concerns of corporate law departments

For corporate law departments, the lack of AI usage visibility and ROI measurement is producing a wide variety of responses, ranging from mild but growing concern all the way to outright suspicion about how law firms are using AI on their clients鈥� behalf. Law department respondents said that while they generally trust their outside counsel to make the right decisions regarding AI use and maintaining quality, most departments have not yet had conversations on those issues with their law firms, including how AI use will affect billing.

鈥淏illing has remained the same as it did before,鈥� noted one corporate legal department attorney. 鈥淪o, either they are not using AI tools efficiently, or they are just doing double work.鈥�

One corporate CLO was far more blunt in their assessment, especially given the lack of detailed discussions or data from firms: 鈥淚 fear that firms will use AI to cut time, but continue to bill for the hypothetical amount of time a task would have taken without it. It’s dishonest, but so are many firms.鈥�

One encouraging note is that, according to TRI鈥檚 2025 Future of Professionals Report, 56% of law firm respondents said they are highly or moderately confident in their ability to articulate the value of AI to their clients. Despite law firms鈥� confidence in explaining the value of AI, however, the visibility gap illustrated in the 2026 AI in Professional Services Report indicates that law firms are not actually having those conversations with clients. Indeed, some corporate law department respondents suggested their outside counsel may be reluctant to discuss AI with them because of concerns about quality and accuracy. One even suggested that firms may feel threatened by AI.

More & better communication is needed

As difficult and complicated as discussions involving AI usage may be, they are also essential. Absent those discussions, trust between firms and clients may be eroding, potentially jeopardizing long-standing relationships.

Here are a few steps that both sides can take to build confidence around the use of AI:

For law firms 鈥�

• • Communicate with clients 鈥� Hold discussions with clients that allow firms to detail how AI is being or will be used in client matters. Solicit feedback from clients about in which instances they would accept (or even demand) AI usage on different parts of a matter.
  • Develop an AI billing strategy 鈥� Determine not only how AI usage is impacting billable hours, but also how that will interact with the firm鈥檚 billing and pricing strategy.
  • Demonstrate and articulate value 鈥� Be prepared to explain billings in detail and answer client questions in terms of not only time and rates, but of value to the client. This includes both the value that AI brings to client engagement, but also the value that the firm brings above and beyond what technology provides, such as more freed-up time for lawyers to pursue value-added work.

For corporate law departments 鈥�

• • Lead the conversation, if need be 鈥� About three-quarters of both law firm and legal department respondents said it is the firm鈥檚 responsibility to initiate discussions around AI usage. However, corporate law departments should not wait for their outside firms to start the conversation. Take the initiative and make sure firms鈥� delivery models and fee structures are clear regarding AI usage.
  • Set expectations 鈥� Provide guidelines, expectations, or mandates on how and when AI will be used in handling client matters. This includes outlining specific use cases, data security protocols, and the human-in-the-loop oversight mechanisms that are used to ensure accuracy.
  • Build an external-facing metrics program 鈥� Law departments need to accurately measure the efficiency gains their outside firms are achieving to ensure that they, as the client, are receiving a fair price for value received. Baselines can be established for how long various legal matters took historically and how much they cost. The baselines then can be compared against AI-enabled engagements to evaluate ROI and business impact. This also allows legal departments to more thoroughly explain those gains to their own stakeholders.

For both corporate law departments and their outside counsel, it is imperative to engage in thorough discussions and develop data that can inform better decision-making. Such dialogue and measurements can strengthen the firm/client relationship and create scenarios in which both sides can reap the benefits of AI use.

You can download a full copy of the 成人VR视频 Institute鈥檚听2026 AI in Professional Services Report听here

Key insights:

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

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

    • The ROI challenge around AI is fundamentally a relationship problem 鈥� 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 鈥� 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 鈥� bound by mutual need but strained by competing incentives. Now, that tension is starting to reach a rolling boil as many law firms can鈥檛 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鈥檙e going to be split at all.

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

Across three 成人VR视频-sponsored sessions during this week鈥檚 Legalweek event, that tension surfaced again and again 鈥� 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 鈥� averaging more than 7% growth in 2025, and likely to stay on that pace in 2026 鈥� 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 鈥� 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鈥檚 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鈥檚 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 鈥� internally and externally 鈥� 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 鈥� 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 鈥� 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 鈥� at least, not for law firms.

Meanwhile, Zarwin Baum鈥檚 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鈥檚 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 鈥� 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 鈥� and the numbers suggest the legal industry is less prepared for this conversation than it thinks.

As 成人VR视频’ 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 鈥� between the firms that are thinking systematically about AI’s role in their business and those that aren’t 鈥� 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鈥檚 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 鈥� 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鈥檚 going to need a few seasons to work itself out.

You can find more of here

Key takeaways:

• • • Worked rate momentum is slowing at a crucial time 鈥� Q4鈥檚 7.1% growth in worked rates, while historically strong, is the smallest quarterly increase of 2025, indicating the rate鈥慸riven profit engine may not be endlessly responsive as firms approach 2026.

    • Elasticity at its strongest and most vulnerable 鈥� Since late-2022, worked鈥憆ate growth has translated almost one鈥慺or鈥憃ne into law firm profitability, but even a slight softening in rate momentum now poses outsized risks as client budgets tighten.

    • History shows the system has limits 鈥� The 2021鈥� 鈥�23 period demonstrated that rate growth alone cannot sustain profitability. Today鈥檚 Formula 1鈥憀evel responsiveness boosts gain quickly enough, but it can leave firms more exposed if the market changes direction.

Even as the winds shift, law firms still managed to sail into a strong finish in the fourth quarter of 2025; but beneath that smooth landing, the current was already changing direction. As the 成人VR视频庐 Institute鈥檚 Law Firm Financial Index (LFFI) edged down 2 points to 61 in Q4, a small but notable reversal after a full year of steady gains. The dip was driven largely by cooling demand growth, and while modest in absolute terms, it hints at a broader realignment that may be taking shape just as the industry steps into 2026.

Unsurprisingly considering its role in profitability, much of this shift comes down to worked rates and their relationship to profitability 鈥� a relationship that, in recent years, has been remarkably tight. Yet Q4 showed the first signs that the market may be entering a more complicated phase.

The F1 machine

In the previous decade, the rate-driven profit engine behaved more open, stable, predictable, and generally comfortable 鈥� albeit with one important limitation. It didn鈥檛 offer much acceleration. In fact, most of the higher鈥憊elocity gains only began to appear as the industry approached the pandemic era. Then, when the pandemic hit and the system started to strain, with any acceleration felt weighed down and less responsive as firms navigated uneven pavement and constant adjustments.

Beginning in 2023, the industry shifted again 鈥� this time with the acceleration power of a Formula 1 race car. Rates became extraordinarily efficient in being translated into profitability. In recent quarters, profit rates have seen significant growth, so when firms pressed the accelerator, the needle moved quickly.

However, an F1 car demands precision. The faster it goes, the less margin there is for error. Today, the market is operating in a phase in which rate increases translate to profit gains at incredible speed.

A decade of history reveals a crucial pattern

The chart above broadens the lens to cover more than 10 years of data, bringing an important nuance into focus. The relationship between worked rates and profitability has not always been as linear 鈥� or as reliable 鈥� as it has in the most recent period. From Q1 2015 to Q4 2021, firms were driving at a manageable pace: For every 1% increase in worked rates, there was an approximate 0.7% growth in profit. Indeed, most of the historical data aligns with the intuition that higher rates bring higher profits.

However, between Q4 2021 and Q1 2023, the pattern bends in the opposite direction. Rate growth accelerated sharply, yet profitability declined. At first glance, it appears counterintuitive, but in racing terms, the track conditions had deteriorated sharply, making speed alone not just ineffective but actually risky. This was a period marked by elevated inflation, rapid expense growth, compensation escalations, and operational volatility across many law firms.

The logic was simple: Even aggressive rate increases couldn鈥檛 fully offset the pressure on margins. Moreover, in such a strained environment, attempts to raise worked rates by 1% led to a nearly 0.9% decrease in profits 鈥� almost a complete reversal. As a result, firms were recording some of their highest worked rate growth levels in nearly a decade, yet profitability on a rolling 12鈥憁onth basis dipped into negative territory and remained there for several quarters.

The goal of discussing this period isn鈥檛 to argue that rate increases backfired. They technically didn鈥檛. Rather, the lesson is more subtle鈥� and more relevant today: Rate growth is essential, but not omnipotent. It cannot solve every profitability challenge on its own.

The more recent elasticity story: Rates and profit move together

The LFFI鈥檚 softening in Q4 was influenced not only by decelerating demand growth, but also by a subtle easing of rate growth鈥檚 momentum. Worked rates grew 7.1% for the quarter 鈥� as we said, still strong, but the slowest quarterly increase of 2025. In a different era, this might have been a footnote; however, since the pandemic, rate growth has become the central pillar supporting law firm profitability. Where productivity and demand once balanced the equation, rates now serve as the primary driver. This means that any moderation, even a slight one, carries outsized significance.

The chart above illustrates this dynamic clearly. Without belaboring the mechanics, each point represents one quarter, with worked rate growth on one axis and profitability on the other, both on a rolling 12鈥憁onth basis. The clustering shows a close, consistent linkage over the last several years, showing that as rate growth pushed steadily upward, profitability almost invariably followed.

One takeaway stands out, however. Since late 2022, every 1% increase in worked rates has corresponded with roughly a 0.9% increase in profit growth, contrasting sharply with the patterns observed during the pandemic period. That kind of elasticity is rare in the history of the legal industry, and it helps explain why 2025 was such a profitable year across the market. Firms exceeded a two鈥慸ecade threshold in rate growth, achieving average increases near 7% and double鈥慸igit gains at the top end.

Again, however, that relationship cuts both ways. If rate growth were to stall 鈥� or if clients were to push back more aggressively on rates 鈥� the profit engine that has powered firms through much of the last three years could lose momentum quickly. The early signs of that tension were already present in Q4, and they could intensify in 2026. Corporate budgets are under acute pressure, and counter鈥慶yclical demand often rises during economically turbulent periods, tightening constraints even further.

Put simply, the market is showing early signs that clients鈥� ability to absorb further rate increases may clash with firms鈥� dependence on that rate growth to sustain their profit growth. And the years of historical data serve as a reminder that this relationship isn鈥檛 unbreakable, and that even well鈥慶alibrated systems can behave unpredictably when conditions shift.

The real question heading into 2026 is not whether firms can continue pressing the accelerator, but whether they can do so safely. At this Formula 1 speed, maintaining profitability isn鈥檛 just about adding power 鈥� it鈥檚 about navigating a track that is becoming narrower, more volatile, and far less forgiving.

You can download the 成人VR视频 Institute鈥檚 Q4 2025 Law Firm Financial Index here

Key findings:

• • • The market remains strong, but growth is difficult 鈥� Australian law firms are still posting solid demand and rate growth in the first half of FY 2026, yet the pace is becoming more challenging to sustain.

    • Australia is no longer a single legal market, but three distinct ones 鈥� The report identifies three clearly differentiated law firm segments: Large firms leading demand growth through aggressive investment; Big 8 firms emphasizing pricing power and cost discipline; and Midsize firms pursuing steadier, more moderate growth.

    • Early signals suggest GenAI is reshaping productivity and leverage 鈥� Changes in hours worked across seniority levels point to possible early impacts of GenAI; and while overall productivity is stable, non鈥慹quity partners and associates are logging fewer hours, while senior associates and equity partners are working more.

The Australian legal market enters the back half of FY 2026 with strong topline numbers, but beneath the surface, the market is working harder to maintain its momentum. Firms are navigating slower rate growth, shifting demand patterns, and the early tremors of what may prove to be a generative AI-driven transformation.

Solid footing, harder-won gains

Australian law firms built an impressive track record over the post-pandemic era, and the first half of FY 2026 shows that run may not be over yet 鈥� although its character is changing. Demand growth of 4.8% year-to-date sits a full percentage point above the average quarterly pace since FY 2022, according to the 成人VR视频 Institute’s just-released 2026 Australia: Midyear Legal Market Update report. Worked rates, meanwhile, rose 4.7%, which is respectable, but a noticeable step down from the 5.4% average growth firms had enjoyed since FY 2022.

At the practice level, the picture is broadly encouraging. Both transactional and counter-cyclical practice groups are accelerating, with workplace relations leading all practices at 9.9% year-to-date growth and corporate general close behind at 7.7%. However, a potential warning sign lies in the divergence among each macro-category’s flagship practice: insolvency & restructuring is surging at 7.9%, while mergers & acquisitions sits in contraction at -2.1%. If dealmaking remains subdued while restructuring activity accelerates, transactional practices could face meaningful headwinds in the quarters ahead.

Three markets, not one

Perhaps the most significant finding in this year’s report is what the market-wide averages have been concealing. Last year’s Australia State of the Legal Market report highlighted growing competition between the Big 8 and a broader group of Large law firms that were challenging the Big 8鈥檚 dominance. This year, a refined three-segment framework reveals that the former Large category was actually masking two very different stories, between Large firms and a newly identified set of Midsize firms.

The newly delineated Large firms have emerged as the clear demand leaders, posting nearly 7% year-to-date growth 鈥� roughly double their peers 鈥� fueled by aggressive investment and expansion. The Big 8, by contrast, are leaning into pricing power and cost discipline, growing demand at a more measured 2.7%. And the Midsize cohort, at 2.4% demand growth, is charting a balanced, moderate course.

The profitability divergence is even more striking. Since FY 2022, the firms now classified as Large have grown profits per lawyer by 27.4%, while Midsize firms managed just 3.1% 鈥� much closer to the Big 8’s 7.1% than to their former stablemates. What previously appeared to be a broad-based challenge to the elite was, in reality, concentrated among a smaller group of high performers that were pulling the average upward.

Early signals of AI-driven change

The report also surfaces a potentially significant development in law firm productivity. While overall hours worked per month ticked up slightly for the average qualified fee earner, the gains are unevenly distributed. Non-equity partners recorded their third consecutive productivity decline, and junior and mid-level associates are also slightly down. Yet senior associates and equity partners are logging more hours, keeping overall numbers stable. One possible explanation is GenAI 鈥� if firms are deploying these tools most heavily on research, drafting, and document review tasks that traditionally filled junior and mid-level associate hours, this is precisely the pattern we would expect to see. While it’s too early to draw solid conclusions, the distribution of hours may represent an early sign of how AI is beginning to reshape the traditional leverage model.

There is also a note of caution from firms鈥� clients. 成人VR视频 Market Insights data shows Australian general counsel growing more conservative in their spending outlook, with net spend anticipation for overall legal work dropping to 0 points. That means just as many GCs see their legal spend increasing as those that anticipating it decreasing.

Interestingly, international legal spend tells a different story 鈥� Australia-based GCs are increasingly looking outward, with the Asia-Pacific and Latin American regions emerging as areas of particular activity, while Europe has cooled. For Australian firms with cross-border ambitions, the short-term opportunity may lie to the global east and south rather than west.

Looking into the second half of the year

As the Australian legal market moves into the second half of FY 2026, the story is no longer one of uniform prosperity but rather, one of strategic differentiation. Demand remains healthy, profitability is solid, and expense discipline is improving; however, growth is no longer evenly distributed. The law firms that thrive in the quarters ahead will be those that understand which game they’re playing. In an increasingly segmented market, adaptability 鈥� not scale alone 鈥� will define success.

You can download a full copy of the 成人VR视频 Institute’s 鈥�2026 Australia: Midyear Legal Market Update鈥� report by filling out the form below:

You can read TRI鈥檚 first “Inside the Shift” feature, The 4 scenarios: Which law firm business model are you building? here

If you鈥檙e running a law firm right now, you鈥檝e probably felt it 鈥� the ground is shifting fast. AI isn鈥檛 some future consideration; indeed, it鈥檚 already shaping how clients choose their firms, how work gets done, and which business models are built to last.

To examine this situation 鈥� and many more in the future 鈥� more deeply, the 成人VR视频 Institute (TRI) has begun publishing a new feature segment, , that will allow our expert analysis and supporting data to more fully tell some of the most important stories in the legal, tax, accounting, corporate, and government areas.

Our first Inside the Shift feature, The 4 scenarios: Which law firm business model are you building? by Elizabeth Duffy, TRI鈥檚 Senior Director of Client Engagement and Raghu Ramanathan, President of 成人VR视频 Legal Professional business, cuts through much of the noise around AI adoption in the legal industry. The piece lays out a clear, uncomfortable truth: in the age of AI, strategic clarity isn鈥檛 optional 鈥� it鈥檚 survival.

For years, many law firms have tried to hedge their bets. A little bespoke work here, a little efficiency there. Premium pricing mixed with cost pressure. The result? A mushy middle that feels safe but is actually the most dangerous place to be. As the feature makes clear: Law firms without a distinct position 鈥� neither elite, automated, scaled, nor protected by regulation 鈥� are the ones most exposed to existential risk.

And here鈥檚 the kicker that the authors point out: Clients aren鈥檛 waiting for firms to catch up.

Corporate legal departments are already evaluating firms based on their AI maturity 鈥� how effectively they use technology to deliver speed, consistency, and quality. This is happening even as many clients are still figuring out their own AI strategies. In other words, law firms are being judged by their clients right now, whether they鈥檙e ready or not.

Client pressure is building faster than internal capabilities can keep pace.

Even corporate legal departments new to AI are asking pointed questions of outside counsel.

The authors don鈥檛 argue that there鈥檚 one correct model. Instead, the piece lays out four distinct scenarios that law firm leaders can choose from, making the case that choosing something deliberately is far better than drifting. Of course, each scenario demands different investments in talent, technology, pricing, and client engagement. What they all share, however, is intention.

That鈥檚 what makes this piece 鈥� and future Inside the Shift features 鈥� so valuable. It鈥檚 not full of hype, and it鈥檚 not fear鈥憁ongering. Rather it鈥檚 offering a strategic framework for leaders who know that AI is reshaping professional service markets but are still wrestling with what that actually means for their organization.

If you鈥檙e a managing partner, innovation leader, or industry watcher who鈥檚 tired of vague predictions and wants a clearer map of what鈥檚 ahead, the Inside the Shift features will be well worth your time. The questions they will raise 鈥� about positioning, differentiation, and the cost of standing still 鈥� aren鈥檛 comfortable, but they鈥檙e exactly the questions firms need to be asking now.

So don鈥檛 just skim the headlines about AI in law. Click through and read today鈥檚 Inside the Shift feature. It might help you see, more clearly than before, which business model you鈥檙e actually building in your law firm 鈥� and whether it鈥檚 the one that will be able to carry your firm into the next decade.

You can find more from the 成人VR视频 Institute here

Key takeaways:

• • • LFFI dip driven by slowing demand 鈥� The small dip in the LFFI was driven almost entirely by decelerating demand growth, which slowed to a still-strong 3.3% in Q4.

• • • Changing of the guard听鈥� M&A work slammed on the brakes while counter-cyclical practices surged, with bankruptcy re-emerging as a major engine of demand growth 鈥� a shift that often signals broader economic turbulence ahead.

    • Rate increases, client pressure builds听鈥� Firms fielded strong rates at the beginning of 2025, which helped power profits; however, with client budgets stretched, firms must demonstrate value to justify their higher rates.

Law firms ended 2025 in an enviable position, even as the 成人VR视频 Institute鈥檚 Law Firm Financial Index (LFFI) score dipped 2 points to 61 for the fourth quarter of 2025, snapping a yearlong upward streak as demand growth slowed from its Q3 pace. The final quarter of 2025 delivered one of the strongest finishes in recent memory, with profits surging and margins cresting above 40%. Yet even as the champagne flows, the winds may already have begun to shift.

Jump to 鈫�

Q4 2025 Law Firm Financial Index

The LFFI’s slight decline was driven almost entirely by decelerating demand growth, which slowed to a still strong 3.3% in Q4 from 3.9% in Q3. More telling than this headline figure, however, was a quieter changing of the guard beneath the surface.

Transactional practices began cooling from their Q3 peaks, with M&A work falling 5 percentage points from its prior pace. Filling the void, bankruptcy work surged in Q4, particularly in December, as counter-cyclical practices re-emerged as the dominant engine of demand growth. If this signals a greater shift for the United States economy, as it often does, law firms may find something far more important than just their demand threatened 鈥� their rates could come under pressure.

The rate question

Rate increases have historically been the primary power behind law firm finances, and 2025 proved no exception. Firms broke through a two-decade-old threshold, with the average firm seeing 7% growth in worked rates. Since the end of 2022, every 1% increase in worked rate growth has correlated to about a 0.9 percentage point increase in profits.

Where things may become less comfortable is the increasing potential for client pushback. Legal services buyers’ budgets are under more pressure than ever, and 2026’s new rate increases 鈥� expected to be as strong or stronger than 2025’s 鈥� are already in effect. If the legal industry continues raising rates at this pace without delivering corresponding increases value 鈥� and communicating that value to clients 鈥� they may see clients shift work to cheaper firms or move more legal work in-house entirely.

We’ve seen this movie before, in 2008 immediately after the global financial crisis, and the result was a stagnant decade of law firm growth.

Preparing for changing weather ahead

The good news is that none of this spell immediate trouble, and there is more than enough time for firms to avoid the worst of the long-term threats. A brighter future, one in which firms use advanced AI tools to deliver more value per hour and thus strengthen their surging rates even further, is just as possible.

By effectively locking in their revenue before the winds shifted and practicing disciplined expense management, law firms have bought themselves some breathing room to invest in technology and talent, at least in the short term.

For law firm leaders, this is a moment for preparation, not for a victory lap. The firms best positioned for whatever weather lies ahead will be those that solidify their efficiency gains and demonstrate value now, ensuring that when the next wind shift comes, they’re positioned not just to survive, but to thrive.

You can download

a full copy of the 成人VR视频 Institute’s “Q4 2025 Law Firm Financial Index” by filling out the form below:

Key insights:

• • • Despite a strong 2025, law firms face growing challenges 鈥� Client expectations continue to evolve, as more clients are now more sophisticated around AI and pricing, pushing law firms to provide greater transparency and communication.

    • Client relationships are becoming shallower 鈥� As clients increasingly demand transparency and collaboration, particularly regarding AI adoption and pricing models, law firms must adapt quickly to meet these new expectations.

    • Differentiation is more vital than ever 鈥� Responsiveness, speed, and clear communication about value and technology have emerged as key factors for law firms to stand out and deepen client relationships.

AMELIA ISLAND, Fla. 鈥� It may have already become clich茅 to say that the legal industry is at a significant crossroads: Firms are coming off what appears by all measures to be a very successful 2025, yet the industry also is facing fundamental structural change, driven mainly by AI and subsequent changing client expectations.

Subsequently, that temperament permeated the opening sessions of the 成人VR视频 Institute鈥檚 33rd Annual Chief Marketing & Business Development Officer Forum (formerly the Marketing Partner Forum) held this week.

鈥淣o matter how well we鈥檙e all doing, the angst level has never been higher,鈥� said one law firm leader at the Forum.

Jen Dezso, Director of Client Relations at the 成人VR视频 Institute, opened the event giving a data-rich thumbnail of the legal market, based mostly on the recently released 2026 Report on the State of the US Legal Market, published jointly by the 成人VR视频庐 Institute and the Center on Ethics and the Legal Profession at Georgetown Law. Dezso demonstrated that almost all key indicators for law firm performance are up 鈥� demand, fees worked, lawyer growth 鈥� and that firms seem to be 鈥渕onetizing the work they capture.鈥� The main drivers pushing firm growth, she explained, are being moved by strategic wins of high-value business rather than a higher volume of ordinary work.

鈥淣o matter how well we鈥檙e all doing, the angst level has never been higher.”

Yet there are some darker clouds on the horizon, she added, noting that client relationships may be a bit shallow. For example, while just over one-third of large clients (36%) said they plan to increase their legal spend in the coming year, less than one-quarter of that spend (23%) goes to the firm that the client uses most 鈥� a figure that has been dropping over the last several years. Indeed, that most-used firm now gets engaged for less than three work types, and only 15% of clients say they will use their most-used firm more in the coming year.

Not surprisingly then, these figures weighed heavily as panels of top lawyers and law firm marketing and business development specialists discussed these matters during the Forum.

鈥淐learly, the softening of client relationships is a key piece of this,鈥� said one business development officer. 鈥淎nd you can see that in RFPs and the level of transparency that clients are asking for. I think a lot of work needs to be done by law firms to ensure these deeper trusting relationships with clients.鈥�

Others on the panel agreed. 鈥淔inancially we鈥檙e doing very well, but we should be looking at what has changed with the clients,鈥� one said, adding that many outside law firms may not have fully processed the impact the global pandemic has had on client relationships over the ensuing five years.

What鈥檚 changed in clients鈥� minds?

Understanding and adapting to this change in clients鈥� mindsets should be mission critical for law firms today. Indeed, all other initiatives 鈥� collaboration, pricing, business development, and more 鈥� will flounder on the rocks if law firms don鈥檛 engage with their clients directly. And the primary result of that engagement should have law firms coming away with an understanding of what clients want and need and, even more importantly, where clients see their outside firms failing to meet those needs.

Though obviously a difficult conversation, this level of client engagement is the only way firms are going to be able to deliver for clients while remaining sustainable, innovative, and profitable themselves.

You can read the full here

Perhaps the most dramatic shift these panelists perceive is the change in client expectations around AI. Several noted that there is a growing disconnect between what clients believe AI should enable law firms to do and what firms are actually delivering 鈥� and many said this was the fault of poor communication. For example, RFPs now routinely include references to AI, with clients moving from a stance of caution 鈥� You can use AI, but not with my data 鈥� to one of collaboration 鈥� Where can we work together within the AI space? This rapid evolution requires firms to be able to communicate their clear roadmap for AI adoption and pricing innovation that is understood by partners and can be conveyed easily to clients.

鈥淭ransparency and communication are paramount,鈥� offered one law firm executive. 鈥淔irms must be able to explain their approach to AI and demonstrate its value to clients.鈥� In fact, several panelists suggested that the best opportunities to deepen client relationships often arise in these conversations around technology and innovation.

In many cases it is the role of the Chief Marketing and Business Development Officers to lead these conversations, especially as these talks can help differentiate the firm. 鈥淭he leaders in these roles may have the most important job within their firm,鈥� noted one panelist. 鈥淭he capability of these roles to see outside the walls of the firm is incredibly important.鈥�

Several panelists pointed out that increasingly in today鈥檚 crowded marketplace, differentiation is more vital than ever, yet seemingly more difficult to achieve. 鈥淪ometimes it does come down to responsiveness and speed 鈥� these age-old client service tenants that we鈥檝e all pursued forever,鈥� said another firm marketing professional.

In fact, according to 成人VR视频 Institute data, clients look at several areas of differentiation when considering outside legal services, including the firm鈥檚 AI implementation, with 40% of clients citing that. And while clients ranked both cost efficiency and the use of value-based pricing lower, at 29% and 16% respectively, many law firm leaders said they consider pricing a critical challenge for the industry, especially given the mounting pressure on the traditional billable hour model.

鈥淲e need to get clients to look at value, and we need to get our own partners to look at our own value proposition,鈥� explained one firm leader. 鈥淚f we can鈥檛 segment the work and see what it takes to deliver this, we are in trouble.鈥�

As the Forum discussions illustrated, as clients become much more sophisticated around pricing, law firms have to make sure their lawyers and partners can communicate the firm鈥檚 value to clients. 鈥淲e, as law firm leaders, need to have confidence in what are partners are saying 鈥� I mean, that鈥檚 true marketing 鈥� and we need to talk through these issues with partners, so everyone is more comfortable addressing this with clients.鈥�

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

Key insights:

• • • Pricing power now depends on clear, measurable value 鈥� Firms must prove their worth at every client touchpoint to justify charging premium rates.

    • Value delivery spans five critical stages 鈥� Demand management, service design, delivery excellence, value capture, and relationship management. All must be systematically audited and improved.

    • Action is essential 鈥� Diagnosing gaps is only the first step; law firms must assign accountability, set goals, and continuously adapt to meet evolving client expectations and avoid competing solely on price.

The 2026 Report on the State of the US Legal Market, published jointly by the 成人VR视频庐 Institute and the Center on Ethics and the Legal Profession at Georgetown Law,听shows that over the past three years, legal industry pricing has skyrocketed at an unprecedented pace.

Many law firms have enjoyed strong demand and the ability to command higher rates, often without significant pushbacks from clients. However, that era of unchecked growth is coming to an end. Today鈥檚 clients are far more discerning about what they are willing to pay for and why. More often, they scrutinize every invoice, questioning whether the value delivered truly matches the premium price charged.

The danger for many law firms is complacency. Past success can create a false sense of security, leading to assumptions that reputation alone will sustain pricing power. However, as client procurement teams become more sophisticated and alternative legal services providers enter the market, firms that fail to prove their worth will find themselves competing on cost, which can result in a race to the bottom that few can afford.

This shift signals a fundamental change in the market in which pricing power is no longer guaranteed by reputation or past performance. Instead, pricing power hinges on a firm鈥檚 ability to demonstrate clear, measurable value at every stage of the client relationship. Those firms that fail to adapt risk being forced into price-based competition, eroding margins and undermining long-term sustainability.

By 2025, even as inflation eased to a more typical 鈥� but still elevated 鈥� 3%, many law firms continued to push rate increases at more than twice that level. The disconnect between pricing and underlying economic conditions had widened into a significant gulf, underscoring the critical need for firms to clearly demonstrate and defend the value behind their premium rates.

So, how can firms ensure they are delivering premium value to earn the right to charge premium rates? The answer lies in systematically diagnosing where value is created 鈥� and where it is destroyed 鈥� across the entire client experience journey.

The 5 stages of legal service delivery

To maintain pricing power, firms must examine their service delivery through five key client experience stages. Each stage represents an opportunity to create value or destroy it.

1. Demand management

Do you truly understand the client鈥檚 business problem, or are you focused solely on the legal question? Effective demand management requires moving beyond transactional requests to uncover a client鈥檚 strategic objectives. This ensures the solutions proposed align with business impact, not just technical compliance.

You can hear more about the 鈥�2026 Report on the State of the US Legal Market鈥� in听, on YouTube

Start every engagement by asking: What client business goal is driving this need?, What constraints is the client operating under?, and How will success be measured beyond legal compliance? These questions can reframe the conversation from a focus on deliverables to a focus on strategic results, positioning your law firm as a proactive partner in the client鈥檚 success.

By facilitating co-design workshops with clients and requiring clear documentation of business goals for each project, your firm ensures that every initiative is aligned with measurable impact. This approach not only demonstrates leadership and a deep understanding of client needs, but it also builds lasting trust and drives greater value throughout the relationship.

2. Service design

Are your offerings built around client outcomes or your own internal structure? Many firms design services based on practice groups and billing models, not on what may serve clients best. This can create friction and inefficiency.

Adopting a client-centric design philosophy requires mapping the client journey, identifying pain points, and designing integrated services around client business needs. For instance, bundling advisory and compliance work into outcome-oriented solutions and coordinating delivery through a single relationship manager simplifies decision-making, strengthens trust, and delivers consistent, measurable value throughout the engagement.

3. Delivery excellence

Do you have safeguards that prevent failures before they ever reach the client? Even the most sophisticated legal advice loses its impact if delivery is inconsistent or error prone. Breakdowns in market research, service design, process conformance, or communication don鈥檛 just create inefficiencies, they erode client trust and diminish the firm鈥檚 perceived value. This is about embedding reliability into your delivery model, so clients don鈥檛 have to chase updates, catch errors, or manage deadlines on your behalf.

Invest in quality checks and project management tools and use proactive risk controls 鈥攕uch as early warning systems for potential delays 鈥� that provide automatic status updates and clear ownership. These measures signal professionalism and reliability, reinforcing your premium positioning.

4. Value capture

Can clients clearly see and articulate the value you鈥檝e delivered? If your impact is invisible, your pricing will always feel inflated. Many firms struggle to articulate outcomes beyond hours billed, which can leave clients to wonder what they are paying for.

Communicate value in terms that matter to clients. Use outcome-based reporting to show how your work mitigated risk, accelerated timelines, or unlocked opportunities. Record these in quarterly impact reports 鈥� because when clients see tangible benefits, they are far more willing to pay premium rates.

5. Relationship management

Do you build trust systematically or hope it happens organically? Trust is the foundation of pricing power, but it doesn鈥檛 happen by accident. Firms that rely on personal rapport alone risk inconsistency and vulnerability when key contacts change.

Implement structured feedback loops, client listening programs, and regular value reviews. These mechanisms demonstrate commitment to continuous improvement and deepen client confidence in your firm鈥檚 ability to deliver.

Turning insights into action

Assessing your client鈥檚 journey is only the first step. The real challenge and opportunity lies in acting on those insights. Start by identifying gaps in the five key stages, then prioritize improvements that will have the greatest impact on client perception and outcomes.

Assign accountability for each stage, set measurable goals, and track progress over time. Consider creating cross-functional teams to break down silos and foster collaboration. Remember, value delivery is not a one-time project; it鈥檚 an ongoing discipline that requires vigilance and adaptability.

As the legal market transforms, so do client expectations. Firms that cling to outdated assumptions about pricing power will inevitably find themselves competing on cost alone 鈥� a losing strategy in an increasingly crowded and sophisticated marketplace.

You can download a full copy of the听2026 Report on the State of the US Legal Market, published jointly by the 成人VR视频庐 Institute and the Center on Ethics and the Legal Profession at Georgetown Law, here