Wall Street banks are pushing major law firms to reduce fees, arguing that the traditional hourly billing model is unsustainable in the age of AI. Morgan Stanley and Citigroup have urged firms to adopt new payment arrangements to save costs, with Citigroup’s Adam Meshel stating that reduced hours due to AI should lead to significantly lower costs per transaction. He expects a collaborative “different working model” based on AI efficiencies to be in place within a year.

Morgan Stanley’s Eric Grossman said the long-standing compensation model tied to associate billing hours is now “extraordinarily unstable” and that the bank will shift most external legal work to competitive bidding and alternative fee arrangements like fixed fees by year-end, while still paying for top-tier judgment. Goldman Sachs has similarly inquired about AI-driven efficiency gains and expects to share in those benefits. Average hourly billing rates for associates at top US law firms reached $798 this year, up 33% since 2023, while partner rates rose 29%.

Nearly half of large law firms report AI has already affected pricing, though changes remain incremental. A hybrid model—fixed fees for routine work, billable hours for complex tasks—is anticipated as the likely path forward.