The Legal Way Episode 13 | The Impact Of AI In Financial Services Law

Join The Legal Way as we delve into AI’s impact on financial services law with Ron L. Woodman, one of the attorneys in Friedman Schuman’s financial services department. We explore AI’s role in legal practices and its regulatory challenges, emphasizing data privacy and security concerns as well as discuss how to prepare for AI’s future in financial services law and the legal industry as a whole. Ron also offers practical advice for legal professionals, ensuring they stay competitive in an AI-driven landscape. Tune in for essential insights on navigating AI’s evolving role in financial services law!

Episode Transcript:

Alyson: Hi everyone and welcome back to the Legal Way podcast. My name is Alyson Layser and I’m your host. I am also the Director of Marketing here at Friedman Schuman. Today we are going to be switching up some of our topics and we’re going to be talking about AI and the legal industry with one of our attorneys, Ron Woodman. It is his first time being on the podcast, so I’m very excited to welcome him and excited to introduce him to you all. So, Ron, please feel free to share a little bit about yourself and then we will dive into today’s episode.

Ron: Great. Thanks for having me on, Alyson. My background is in financial services almost exclusively. That includes generating and preparing loan documents on the front end. If a bank is loaning money to a borrower and they need an attorney to prepare the paperwork, I handle that. And we do that. We can do it from $100,000 to upwards of 50 million. It’s a broad range that we have there. In addition, I have substantial experience in litigating financial services cases, which is actually rather exciting. Most people would find them to be a little bit dry and boring, but I enjoy them. That takes me into state court, into federal court, into bankruptcy court. It’s a really good way to keep you on your toes.

Alyson: Absolutely. Something that I have definitely learned since working here is that across all departments, there are some very exciting and interesting things that happen that you guys get to work with, very interesting clients. And so even if some people might think that maybe one sector of law is maybe a little bit more dry, like you mentioned, and normally it’s not as much as what some people may think. There’s some very interesting things that happen across all different aspects of law. But thank you so much for sharing that introduction. So first, what I’d like for us to dive into is a little bit about how to understand AI in the legal industry. And then we are gonna touch a little bit about, you know, how AI can affect financial services attorneys and dive a little bit more into that. But first, I would love to hear your answer to what exactly is the role that AI is playing in the legal industry, but particularly in financial services where you’re working on a day-to-day basis.

Ron: AI is beginning to be a tremendous force in our area. To discuss it first we need to make sure that we understand what we’re talking about with AI. AI is not a central computer that’s making decisions and executing those decisions without human interaction. AI is also known as machine learning. It learns from human tasks. It performs those tasks when requested to the best of its ability and the best of its programming. It’s not at the point of being able to make judgment or manifest creativity, but we tell it what we want. And it goes online and tries to fulfill our request by looking at in, you know, billions of web pages, billions of pieces of information. It’s truly an amazing resource. And in financial services, we’re starting to see it crop up here and there in a couple contexts. The first being, how AI can be used to improve the way that we draft documents. AI is a very good writer if you tell it the right things to do. And AI is now becoming something that clients want to use in-house or even may request that you use it at the firm to control costs. AI has a tremendous ability to increase efficiency. So, it’s excellent in that regard. On the other side, in financial services litigation, AI can be a very, very good research asset. As I mentioned, it goes through everything you can find online and tries to fulfill your requests. And I typically use it just kind of like to get the initial layer of research done. If I need to know how something is, what the law in Nevada is regarding registration of a corporation, I’ll ask AI. Microsoft Copilot is my favorite one. I’ll ask it, you know, how do I form an LLC in Nevada? And it’ll give me all the links I need to go on and find out myself rather than me surfing around.

Alyson: That’s super, super interesting. I, myself, have really only used ChatGPT and I use that pretty much on a daily basis. But I will say I have logged on to quite a few webinars just to learn a little bit more about AI in regard to legal marketing. And it really is such an interesting tool. And like you said, it can really increase just the efficacy of what you’re doing. And so, I think that the legal industry continues to just learn how they can best utilize it, it will help in so many different aspects of how a firm operates. And for me, who just finds this type of stuff interesting, more so from a marketing perspective, I just think that’s so cool and interesting, and it really will change the profession a lot, I think.

Ron: Yeah, I do as well. It can be a bit scary at times. I’ve made very complex requests to Chat GPT. For example, “please generate a contract clause containing a prepayment penalty of a five-year term.” And it spits out almost exactly what we see in most in most loan documents. And I saw that, and I went, oh boy, there goes my job. But since then, I’ve realized that AI is such a great tool. It can increase efficiencies. We can get so much more done if it’s properly used. And yeah, it is a little bit scary, but everything’s scary. The internet was scary. Telephones were scary. People thought light bulbs were going to be the end of the world. And, you know, that didn’t happen.

Alyson: That’s very true. And I have seen, especially as AI started to get a little bit more prevalent in terms of different legal publications and things, one thing that I was seeing a lot was that a lot of lawyers were scared to use AI. And like you mentioned, totally understand that fear, but everything when it’s first starting out, it is a little bit scary because it is new and you don’t know exactly how it’s going to work. Based on what I’ve seen, I feel like AI is here to stay, especially in the legal industry. And it’s something that once you learn how to properly use it, it’s just going to better help you with clients, with cases, with documents, all of that type of stuff. And I think that in the coming years, we’re going to see a lot of more legal specific or law specific AI platforms and things like that, that lawyers might feel a little bit more comfortable using.

Ron: We absolutely will and AI as it is evolving, you know, is getting to be something that is on it, that is, you know, very well-known and people are beginning to use it. In the legal profession, a lot of times the discussion about AI begins with, did you hear about such and such a case where they had Chat GPT write a legal brief and it turned out that the legal brief had cases that didn’t even exist. And the person who submitted to the court got sanctioned. And that gives you a big pause. Was AI making up cases? No, AI was having what’s referred to as hallucinations. Hallucinations are when AI perceives there to be a pattern and it then spits out what it thinks you want based on your queries. And often the hallucinations can make no sense or be entirely incorrect, as they were with this gentleman who is probably thinking about changing his last name because the Chat GPT brief is following him around.

Alyson: Yes, I did hear about that when I was on a webinar recently. And unfortunately, I do think it has happened to a few attorneys in the beginning stages of Chat GPT in implementing it into their routine as an attorney. One thing that I have heard a lot of people talk about with regard to AI and the legal field is that, you know, regardless of what you’re asking, Chat GPT, or any other similar platform to do, ultimately, as a lawyer, you are responsible for what you are presenting. And to use Chat GPT, and just other AI platforms as more of like a reference point, something like a starting point, and then go back in and edit accordingly, add in details when needed, instead of just solely relying on Chat GPT or something similar. With the example of the fake cases I think that that’s a really good example that you can’t just rely on it for everything and take everything word for word that it generates. You really do have to go in and tailor what it is that Chat GPT creates for you to what exactly is that you’re looking for and what you need to avoid some of those errors that might pop up.

Ron: Right, right. And I think the mindset that you need to have if you’re using Chat GPT for research or writing is you need to approach it as though it’s essentially a Google on steroids. And we all know not to believe everything that Google spits out when we do a search. So don’t believe everything that, you know, Chat GPT or Copilot or Google Barg. Don’t believe everything that they put out. Take a look at everything and look at it with a skeptical eye. And that will save you a lot of hassle and probably some sanctions.

Alyson: Absolutely. I like that, Google on steroids. I think that’s a really good way to describe it. So next question for you along those same lines. How exactly has AI impacted the legal profession in recent years? I know that within the last year, we’ve been hearing a lot more about it, but has AI impacted this profession a little bit more in maybe the past 10, 5, 10 years or so?

Ron: That’s hard to say. It’s certainly more recognized now, but the big players, you know, LexisNexis and Westlaw, they’ve been working on AI themselves and trying to come up with tools that take advantage of machine learning. So, we’re starting to see the fruits of that when we…do a Westlaw search and it comes back with very accurate results. The downside is that you have to pay for Westlaw and that’s expensive, but it’s getting better. And Westlaw has already announced that it’s going to put out an AI dedicated service. They won’t give a date, but they plan on rolling it out. And I think that it will essentially be a chat GPT with the information that’s available on Westlaw rather than everything on Earth, everything that’s in the internet. You know, they’ll confine the universe to legal items that exist only in their databases.

Alyson: That’s really interesting. I’m sure that once they do launch that, it will be very popular and a lot of people will be wanting to start implementing that and using that. And I feel like just over time in the coming years, though, it’s that platform and other similar ones that will be created by, you know, other, you know, platforms like that, will just continue to get better and better and just be more enhanced. And it’s gonna be really interesting to see in just a couple years time what exactly they will be able to do with with those changes. It’ll be really interesting to see.

Ron: Yeah, it does have an additional role or two that it has been used for a while, but now we’re starting to be able to diagnose it. And you know, one is in the hiring process applicant tracking systems, where they use AI to come through hundreds and hundreds and hundreds of resumes to find the right person, or to find the right person according to their search parameters. Another area where AI machine learning has emerged is in billing review, which makes most attorneys kind of cringe. Essentially what happens is you submit your bills to your client. And institutional clients use these all the time. And then the client has a specific set of instructions, you know, for the program to go through the bills and tag like items where the client doesn’t pay. For example, some clients say, we’re not going to pay for discussions between attorneys at their own firm. So that might pop up on a result as something that they want to challenge. In addition, it also can kind of get an idea of how long things take and compare it to how long you build for it. And that can lead to questions that, you know, uncomfortable questions, but questions that need to be answered. And the answer is often, look, we’re in a specific situation. This case is hotly debated. No one is cooperating, so yes, this letter did take me a lot of time to write. So that’s what we’re seeing in the billing sphere.

Alyson: That’s super interesting. And that is something, you know, again, where in a few years, it will be interesting to see how that evolves as well. So, you’ve mentioned a few tools that you have used a few AI tools like specific AI applications or tools services law or any that you also really enjoy using in your day to day with your

Ron: Well, in financial services, you know, FinTech, financial technology, there are a host of vendors that put out products that are designed to draft loan documents or draft modification agreements. And you can usually tell which ones are done by AI because there are mistakes that a human wouldn’t make in there. You know, you may have a loan that’s in Rhode Island, and for some reason it has Minnesota as the governing law. So, you see things like that, and you think, all right, well, did somebody just kind of get a little bit too comfortable with AI drafting for them? Or is this an inconsistency that we need to talk to the client about because if there’s that inconsistency, there’s a prospect that a lot of documents will have that inconsistency. And that’s kind of what we see on the front end. On the back end, in litigation, AI is very helpful for reviewing rooms full of documents based on searches that you input. I did a test drive on a, on a platform called Case Text, which was the first AI developed especially for lawyers that I was able to find since then. And what that would do is it would be very interesting because it wouldn’t go outside of the confines of case law to answer your questions. So, it was good to, you know, what are the five most persuasive cases regarding XYZ doctrine in the third circuit? And boom, it tells you the cases that it believes or that it has been programmed to, I use believe loosely, or that it’s been programmed to select. And again, that’s where you have to be smart and you have to be skeptical, but those are a good place to start. And, you know, that first search, if AI can make that search a 10-minute search rather than a 30-minute search, and the results will lead you down the path of research that you want to go, you can save a lot of time there.

Alyson: Absolutely. And that goes back to, you know, what we were talking about at the beginning, just how you can utilize the different AI applications and tools just to work more efficiently. So, it’s really cool that you can use something like that just as a starting point. But like you mentioned, always, always review, you don’t want to have the wrong state in any of those documents. I believe we talked about this the other day, but I think it was on a webinar that I was listening to. I had seen that some attorneys were using, I believe it’s called a mid-journey or mind journey, something like that, but they were using it for trial exhibits. And they found that it was just a much more efficient way to be able to create exhibits like PowerPoints and things like that for their trials and even for like some mediations and things like that. And so, it is very interesting to see just how many different platforms and tools lawyers are able to now implement from AI into, not just their documents and you know, case text and everything, but also for trials and other things like that. So, it’s pretty cool.

Ron: Yeah, yeah, it’s super useful for that. And for presentations, it’s useful as well. I mean, if you ask the right questions, you can save a ton of time on a PowerPoint. And that makes it easier to create content that you can then convey to your clients or to any audience.

Alyson: Absolutely.

Ron: Yeah, and again, it’s a time saver. It’s a great tool.

Alyson: It really is. And like you said, it really is about asking a lot of the right questions. I know for me, that was a little hurdle that I had to jump over as I was learning about Chat GPT. You really do have to just kind of play around with it and just ask the right questions, get very specific with what you want. And then you are more likely to be able to get what you want to get out of it and be more efficient in the long run using it. So, it’s really interesting and it’s fun to play around with it with if somebody who is listening has not tried any of the AI features like CoPilot or Bard or Chat GPT, it’s fun to play around with and I highly recommend you do so.

Ron: Yeah, I think that that’s the first way that you become familiar with it is you just play around with it. In fact, I’m looking at talking points right now and one of them is titled “Play Around with AI.” Get used to asking it questions in the format that yields the best results. You can ask it to generate art and images. Sometimes you’d like to see if you can trip up AI. All of those things are great ways to become familiar with it and to better understand it to the point where you can use it as a tool.

Alyson: Absolutely. And when you play around with it a little bit, it becomes a little bit less intimidating as well. So, the next topic I want to dive into is one that I think, I mean, we have touched on this a little bit already, but I think it’s a really main concern for a lot of lawyers. And that is just data privacy and security. So, in your opinion, how does AI specifically in financial services law, how does that affect data privacy and security and is that something that people using it to be concerned about?

Ron: Well, it definitely plays a role. AI is still at the point of only being able to follow directions from humans. But it can be used to code programs better, such as, you know, antivirus programs, security programs. They can all be enhanced with the use of AI and AI can be deployed to be incredibly effective, far more effective than it is even today. We’re going to see some things that show us how security and data privacy are being protected by AI to an extent that exceeds the current protective levels. Now, the other side of that coin is problem. you’ll have bad actors, you know, that will try to use AI to get to data. You know, I mean, the classic example of that is a hacker. You know, all of a sudden they’re handed AI, and AI can do billions of calculations, and it can automate this, and it’s like you’re giving them a great tool to, you know, try to penetrate corporate security or law firm security. So, it’s almost as if law firm security has to be designed to stay a little bit ahead of the threats that are out there. And the way that is done, and this is unfortunate, but it’s true, is you don’t skimp on your security. You go for the best product that…

Alyson: Absolutely.

Ron: You know, that is suitable for what you’re doing. Even the most minor breach can result in a tremendous amount of damage. We’ve all been part of a breach, we may or may not know it, but that’s where spam comes from, you know, that your information gets put out there. So, with respect to security, it’s rely on security experts, don’t skimp on it. Always make sure that your security measures are aligned with what you do. And that can be the only way to go, I think.

Alyson: Yeah, no, those are really great points. And I totally agree that especially, you know, in the legal world, skimping on security is definitely something that you don’t want to do, especially just having so much of your clients’ data. Which brings me to my next question is, are there any specific or key considerations for protecting client data as AI is becoming more?

Ron: Yes, there is. You want to keep all information in-house and try to keep it off the internet as much as possible. That is achieved largely through having centralized servers and a VPN portal that is secure. Even though those exist, they’re not perfect. So, you really need to keep an eye on making sure that you’re not using your personal email to send sensitive information, you know, even to yourself. You know, I’m guilty of it every once in a while. I’ll email myself a document I want work on so I can pop it up easily at home. With that comes risk, so you need to appreciate the risks of that and try to keep everything in house.

Alyson: Mm-hmm. Yeah, no, that’s a really good advice. I know for myself, when I started working here, I didn’t come from working at another law firm and where I worked previously, we didn’t have all the different types of security and like VPN and everything that we have here. And I was like, I just don’t understand why we have all this. But as I’ve been working here for a while, I completely understand why and I’m like this is so necessary and not only in the age of AI is it is it important but just overall for the security of yourself and your clients is it a very, very important? So those are all really great pieces of advice.

Ron: Right, and in the event of a catastrophic loss of data that’s being compromised, it’s a lot easier to calm people down as far as, you know, what did you guys do wrong or, you know, we think you’re liable for this. It’s a lot easier to address that when you are able to say, we use cutting edge technology to keep our…our information secure. Everyone uses VPNs. We have redundant safety measures. All of our software is up to date. Sometimes there’s just nothing you can do. All you can do is do your best and that will cost a lot of money and may cause quite a few headaches, but that’s what you need to do to protect information.

Alyson: That’s why you don’t skip on security as we learned today. We have talked a little bit about what AI may look like in the future. So, for some attorneys that are maybe just kind of dipping their toes into the AI pond, so to say, how can they stay up to date with all of the AI developments that are happening in the legal industry?

Ron: Well, a lot of that depends on their level of commitment to learning. For example, I subscribe to a podcast that every week it kind of gives me an update on AI. And I also, you know, my news aggregator service on my phone, on my tablet, all of that, I have it as a topic that I’m following. And I also, I’ve read a couple books on it, and I’m happy to give those books a plug right now.

Alyson: Yeah, feel free and also the podcast that you listen to as well. I’m curious.

Ron: Yeah, the books are Super Intelligence is one of the best when it comes to the more theoretical aspects. There’s a book called The Coming Wave that focuses a lot more on prediction of what we may see and hence the name The Coming Wave. Both of these books are informative, and both of these books can be a little bit scary when they tell you about what happens when things go wrong. And this is an item that we haven’t discussed yet, but it is something that pops up in these AI discussions. And that’s the problem of containment, right? Making sure that people don’t use AI for, you know, for improper purposes. There’s never going to be a situation where AI goes out into science, it’s going to try to, you know, destroy the world. But will there be, you know, a deranged leader who wants to…wants to do that? Then the answer is yes. Throughout history, we’ve been, you know, we’ve seen that…that leaders and military figures, politicians will do things that seem abhorrent to us. And that’s the problem with containment. You can’t contain the information as easily as you would contain, say, a note that you’re passing to a soldier that’s going to take it, you know, to a general. Everything’s out there. And if it takes one bad actor in that, maybe a state, and maybe a person, or maybe a group, and they use AI, I suppose, for a sinister purpose and succeed, then what we’ve seen is a loss of containment.

Alyson: Yeah, and while that is kind of scary to think about, I think it is something that’s good to be aware of as AI is just becoming more and more prevalent and we are seeing it everywhere. I mean, I was just telling you the other day that I do some work in Adobe and I for months didn’t see anything about AI and then one day I logged on and they have like an AI assistant and we’re seeing things like that just become more and more prevalent, you know, it’s going to be everywhere. So, it’s something to definitely learn about and just be aware of kind of everything that could take place with using it, the good and the bad, the pros and the cons. So, I think it’s important that all that be mentioned. So next question for you is, are there any emerging trends or technologies that you have been seeing that financial services attorneys specifically should be aware of, or just for any attorneys in general.

Ron: Well, I mean we’ve discussed the documentation process and that’s not just financial services. That’s for any contracts. IBM and Comcast are probably using AI to help them draft agreements with customers and content providers, things like that. So, we need to understand that that’s out there and it’s beyond the realm of law.

Alyson: Yeah, that’s great. I think that that’s really important for all attorneys to be aware of is using it that that AI can be used for documentation because I mean, that’s a big chunk of what attorneys do and is creating documents, writing documents and, you know, proofreading those, making sure that, you know, they, they are all correct and everything. So, I think it’s really important that attorneys know that is something that it’s starting to become a trend now and will probably continue to be a trend that attorneys use AI for their documentation. So, I think that’s great. I would love to also ask you about some practical tips that you might have as well. Do you have any other advice? And I know that we have talked about this a little bit in terms of playing around with AI and everything, but do you have any other advice for attorneys who would want to leverage AI in their practice?

Ron: I do. And the first is read voraciously.

Alyson: That’s a great tip.

Ron: Yeah, the Internet is full of resources that can explain AI machine learning in a granular level. The books that are out there, you know, the two of them that I mentioned, those are great. We have to take it upon ourselves to make sure that we’re educated on this so that we can…have more of a symbiotic relationship with AI, rather than feeling like we may be replaced with AI. So there’s a need to embrace technology out there. And you’re never too old to embrace technology. You may be to the point where you don’t really feel like it’s a good investment of time, but you know. Reading and learning and thinking and playing around with AI, that’s what you got to do. Once you do that, you see the benefits and the limitations, and then you can make more informed decisions about how you want to go about your business.

Alyson: Absolutely, and I think you because AI, it’s kind of a buzzword now, I mean everybody’s talking about it. You can do a very, very simple Google search and find just a ton of information about it a ton of books about it a ton of podcasts about it and so there are a lot of free resources out there for people to be able to learn more about AI Which is really, really incredible. There’s just so many resources right at your fingertips where you can learn so much that you can play around with and then implement into your own practice. I think that’s a really great tip. I think for a lot of just people in general, just researching it and learning about it and reading about it, like you said, is the first step to really starting to leverage AI into whatever profession somebody might be in. I think that’s great.

Ron: That and one more tip on it is we need to try very hard not to be suckers because everyone and their dog is out there with an app that they have incorporated the name, you know, a reference to AI. It’s everywhere. It’s like probably the most talked about concept in the business and legal world. So, we just need to remember, all right, so this program, it’s based on AI, it’s going to give me the best results. I’m going to look under the hood and see what’s there. Take a free trial if you can. Just have a healthy dose of skepticism when it comes to the providers that are claiming that…they’re better due to AI. They very well may be doing the exact same thing you could do, you know, in a chat with ChatGPT or with any of the other, you know, with Microsoft Copilot, Google Bard. And they may be doing the exact same thing you could do there, but just repackaging and charging you.

Alyson: Yeah, no, that’s a very, very good point. Absolutely. And I think that’s I know that’s something for me that I have definitely forgotten as I have started to do some of my own research into AI and use some different platforms. So, I really appreciate you bringing that up. Before we wrap up, do you have any strategies or any additional advice, tips, what have you, for lawyers to continue to remain competitive and relevant in what has now become a very AI driven legal industry?

Ron: Well, ideally, we wouldn’t just be competitive, we would be leading. So, I reiterate that you need to learn about AI and machine learning. You need to learn how it works, where the data is being drawn from. You need to play around with it. You need to see what it can do. And you just have to make sure that you’re educated on it. Because you don’t want to be the last one in the room who learns that there’s this tremendous resource that you could be using to improve your work product. Ideally, you would be leading the way and people would be wondering how you’re putting out such great content so quickly. And then you don’t tell them, and you just pretend that you’re a genius and you never have to sleep. those and skepticism. That’s what I would recommend.

Alyson: That’s really great. I love those pieces of advice. I think they’re very, very helpful. So, before we officially wrap up this episode, is there anything else that you would like to share? Any final thoughts about AI in the legal industry? Or anything about AI in financial services?

Ron: Not really so much in the legal industry, but it’s always fascinated me, and this might be something that would prompt research for anyone who’s listening to this. It’s always fascinated me how AI can guide investment. And there are funds out there, there are ETFs that have investment that’s guided by AI. I’m keeping my eye on that because it seems to be very interesting. Because you’re running into a situation where there’s an entity, the AI program, that can make decisions based on data so much faster than you could even possibly read a question. I mean, we’re talking billions of calculations. So, at some point, it’s going to be something that makes its way into the hands of consumers. Right now, clearly, high frequency trading and things like that and using automated buy and sell, that exists. The way that evolves, I think, is very interesting. If you like investing, then that’s a great place to start.

Alyson: That’s very interesting. I did not know that AI played a role in any of that. So, it’s definitely going to prompt me to do a little bit of research because now I’m intrigued. So, I appreciate you bringing that up. And you might have to do maybe a whole other episode about that someday, just solely on that topic. So yeah, but this was all really wonderful. I feel like I learned so much about AI just from chatting with you. And I’m sure that our listeners did as well. So, I just want to thank you so much for joining me on the podcast, sharing your expertise and your tips and your advice. And we will have to have another AI episode soon on The Legal Way!

Ron: That sounds great. Thanks for having me.

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