Legal Ethics: MSOs: Good for Big Law, good for all?

By Jim Doppke

As we head into 2026, we should keep an eye on a trend in the legal profession that ethicists are watching closely and are working to shape: the Management Services Organization (MSO).

MSOs are entities created to contract with law firms to provide staffing, recruiting, compliance, IT, and other services. If structured correctly, the firm and the MSO can reap the benefits of outside financing – made available to the MSO by a lender or private equity firm – while maintaining an essential and demonstrable separation between legal and non-legal functions. That is, the structure must ensure that neither the MSO nor any outside funder can control the professional judgment of the lawyers in the law firm; and, just as crucially, there can be no sharing of legal fees between the two entities.

As recently as last month, the AM Law 50 firm McDermott Will & Schulte of Chicago signaled its interest in adopting the MSO model. That could set off a chain reaction among the largest and most profitable firms, and – as long as the transactions address regulatory concerns appropriately on paper and in practice – the financial world of Big Law may be altered forever.

But what about Medium Law and Small Law? Can the MSO model, or the legal ethics reasoning underpinning it, help those sectors of the legal market? In a word: Yes. Smaller firms may not have the human capital, physical assets, or financial resources of the largest firms. But that should not be a barrier to the business advantages that an MSO-style structure could bring, as long as the firms are ready to commit to strong supervisory regimes and to their own professional independence.

Dual profession lawyers

Solo and small firm practitioners who operate side businesses – perhaps providing law-related services – already have experience with structures similar to those that can be used in the MSO model. These “dual profession” lawyers likely already maintain separate business entities for their law practices and their other businesses. If the lawyer’s clients might also wish to obtain the services of the lawyer’s other business – for example, financial planning services – the lawyer can give them that option, as long as she discloses to the client her ownership of the business, her role in each capacity, and the basis and method of compensation for all services.

In the traditional “dual profession” scenario, the non-legal-services entity that the lawyer operates is not typically seen as a vehicle for financing that would otherwise be unavailable to the lawyer. But in the world of MSOs, it may be just that. An entrepreneurial lawyer or firm may start one or more side businesses that could attract investment, and that could give rise to a profitable and productive funding-and-services agreement with an MSO. The MSO could manage not just the back-office affairs of the law firm, but also many of the functions of the ancillary businesses. The lawyer, already experienced in operating several business entities, could proceed to oversee the entire operation with a strong sense of professional independence. She could ensure that her clients understand the nature of the legal and non-legal services available to them, and she could offer them streamlined versions of both.

MSOs and multiple law firms

Many MSO models contemplate that there will only be two entities in the relationship: The MSO and the law firm. But could multiple smaller or mid-size firms contract with an existing MSO for back-office services, with the MSO also potentially providing access to funding? Yes, if the MSO could maintain appropriately stringent methods of ensuring confidentiality of any client data, and if the law firms contracting with the MSO carefully supervised the MSO’s work and monitored the potential for conflicts of interest. As long as each firm assumes that supervisory responsibility, while scrupulously guarding against any interference with their professional decision-making, all firms contracting with the MSO could benefit from streamlined processes and lower-cost services.

Real talk about professional independence

But what does that “scrupulous guarding” against interference in legal decision-making really entail? Many in the profession are concerned that even to invite private investment in MSO-style structures, much less to actively pursue it, would jeopardize the independence of smaller firms and solo practitioners in particular. They see private investors as motivated not just by money, but by making the most money as fast as possible, and they perceive that as potentially being in opposition to the deliberate and judicious ways lawyers must help clients make decisions. They worry that there is functionally nothing a lawyer can do to resist a funder’s pressure.

This is where strongly-drafted service agreements come in. If large firms do pursue MSO structures, they will have iron-clad contracts with the MSOs, and other practitioners must take similar care in drafting such agreements. It is not a matter of reciting magic words that, once uttered or written, make an agreement invulnerable or ethically compliant; however they are worded, any MSO services agreement must clearly affirm, in every aspect, the centrality and inviolability of the lawyer’s advice to the clients and the clients’ decisions based on that advice. The MSO’s inability to practice law, or to influence legal decisions, are more than truisms, and they must be specifically recognized in any agreement. The parties must also link, carefully and specifically, any payments from the firm to specific services provided by the MSO, and the prices for those services must be commercially reasonable.

The tenor of any MSO services agreement must not be one that seems to envision the law firm as an asset being acquired by a funding entity. You can be sure that any Big Law firm’s MSO agreement will not have that air, and any other firm of any size should and will be in the same position. The concept should focus much more on the MSO’s services than on its capacity to manage. MSOs and their funders are aware of lawyer regulatory systems, and of the fact that there is currently only one ethics advisory opinion (Texas Center for Legal Ethics Op. 706) approving of MSO structures (with the ethical caveats described in this column). The constraints are clear, and all parties know that they must be handled appropriately. If the lawyers drafting MSO-related agreements take the opportunity to assert the principles of ABA Model Rules 5.3, 5.4, and 5.5 clearly, and keep their eyes open to potential risks, they will be best able to act on those principles to the benefit of their practices and their clients.

 

 

Jim Doppke is a partner at Robinson, Stewart, Montgomery & Doppke in Chicago, Ill. His practice involves representing attorneys in legal ethics and professional responsibility proceedings. He can be reached at [email protected].