January 16, 2004
A lawyer may not enter into a referral arrangement with a nonlawyer who is a securities dealer to refer the lawyer’s clients to the securities dealer, who would then pay the lawyer a portion of the advisory fee for the clients referred, unless the referral is in the best interests of the client, the lawyer makes full disclosure to and obtains the informed consent of the client in writing, and the client receives the benefit of the referral fee. A lawyer may refer a client to the lawyer’s own ancillary business to provide financial services to the client only if the referral is in the client’s best interests and the lawyer follows the rule on business transactions with a client. If the services to be provided by the lawyer’s ancillary business are nonlegal, the lawyer should advise the client that the protections of the attorney-client relationship will not apply to the nonlegal services. The lawyer should not use the ancillary business as a “feeder” to the law firm.
RPC: 4-1.7(b), 4-1.8(a), 4-5.7, 4-7.4(a)
Opinions: 60-26, 70-13, 73-1, 78-14, 79-3, 88-15
The Professional Ethics Committee has received an inquiry from a member of the Florida Bar who is contemplating entering into a referral arrangement with a nonlawyer. The inquiring attorney has been approached by a securities dealer who would like to pay members of the Florida Bar a portion of any advisory fee generated in exchange for referring clients to a specified financial advisor. The attorney would also have the option of taking an examination to become an investment advisor. The attorney could then become actively involved on the client’s account and be eligible to share in an advisory fee based upon the amount of work the attorney performs on the client’s account.
This inquiry raises two questions. The first question presented is whether an attorney can accept a referral fee from a nonlawyer, such as a financial advisor. Two prior opinions issued by this Committee apply to this type of an arrangement. Ethics Opinion 60-26 does not disapprove of the payment of a fee to a lawyer provided the following three conditions are satisfied: (1) the lawyer is satisfied after conducting an independent investigation that the investment or referral is a proper one under all of the circumstances; (2) the lawyer makes a full disclosure to the client of all the facts, including the fact of a prospective payment of a fee to him/her by the investment company; and (3) the lawyer secures his/her client’s consent in writing to such a payment.
In addition, a lawyer must comply with the requirements of Ethics Opinion 70-13 that discusses the payment of fees to attorneys by financial institutions. In that opinion, the Committee reaffirmed Opinion 60-26 but placed an additional requirement that the lawyer pass on the benefit to the client or credit the client against fees ordinarily charged by the attorney.
The second issue is whether an attorney can ethically refer a client to an ancillary business in which the attorney has a financial interest and will provide the client nonlegal services. Presuming that the ancillary business is more than an attempt to circumvent the restrictions on referral arrangements as outlined in Ethics Opinion 60-26 and 70-13, nothing in the Rules Regulating the Florida Bar creates a per se prohibition for an attorney to refer a client to a bona fide ancillary business in which the attorney has an interest.
Recently, the Florida Bar has promulgated Rule 4-5.7 that speaks to the issue of responsibilities regarding nonlegal services. Rule 4-5.7 provides the following:
(a) Services Not Distinct From Legal Services. A lawyer who provides nonlegal services to a recipient that are not distinct from legal services provided to that recipient is subject to the Rules Regulating the Florida Bar with respect to the provision of both legal and nonlegal services.
(b) Services Distinct From Legal Services. A lawyer who provides nonlegal services to a recipient that are distinct from any legal services provided to the recipient is subject to the Rules Regulating The Florida Bar with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of the attorney client-lawyer relationship.
(c) Services by Nonlegal Entity. A lawyer who is an owner, controlling party, employee, agent, or otherwise is affiliated with an entity providing nonlegal services to a recipient is subject to the Rules Regulating The Florida Bar with respect to the nonlegal services if the lawyer knows or reasonably should know that the recipient might believe that the recipient is receiving the protection of the client-lawyer relationship.
(d) Effect of Disclosure of Nature of Service. Subdivision (b) or (c) does not apply if the lawyer makes reasonable efforts to avoid any misunderstanding by the recipient receiving nonlegal services. Those efforts must include advising recipient, preferably in writing, that the services are not legal services and that the protection of a client -lawyer relationship does not exist with respect to the provision of nonlegal services to the recipient.
As indicated by Rule 4-5.7, an attorney who has a financial interest, owns an interest or is otherwise affiliated with a nonlegal entity would be subject to all of the Rules Regulating the Florida Bar, unless the activities are distinct from legal services. An attorney should advise the recipient of nonlegal services in accordance with Rule 4-5.7(d) to avoid any misunderstanding that the services being provided are legal services. Whether or not the services being provided by the inquirer are considered nonlegal services is a factual question beyond the scope of an ethics opinion.
Because the inquirer intends to refer legal clients to an ancillary business, all activity related to the referral will be subject to the Rules Regulating the Florida Bar. Rule 4-1.7(b) requires that an attorney not allow his or her own personal interest to affect advice given to a client. Any recommendation to a client to use a particular business or service must be in the client’s best interest. Assuming the recommendation to use an attorney’s ancillary business is in the best interest of a client, Rule 4-1.8(a) requires the attorney to comply with the following:
(a) Business Transactions With or Acquiring Interest Adverse to Client. A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client, except a lien granted by law to secure a lawyer’s fee or expenses, unless:
(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
Moreover, some activities of a nonlegal ancillary business will also be subject to the Rules of Professional Conduct. Rule 4-7.4(a) is instructive and provides:
(a) Solicitation. Except as provided in subdivision (b) of this rule, a lawyer shall not solicit professional employment from a prospective client with whom the lawyer has no family or prior professional relationship, in person or otherwise, when a significant motive for the lawyer’s doing so is the lawyer’s pecuniary gain. A lawyer shall not permit employees or agents of the lawyer to solicit in the lawyer’s behalf. A lawyer shall not enter into an agreement for, charge, or collect a fee for professional employment obtained in violation of this rule. The term “solicit” includes contact in person, by telephone, telegraph, or facsimile, or by other communication directed to a specific recipient and includes (I) any written form of communication directed to a specific recipient and not meeting the requirements of subdivision (b) of this rule, and (ii) any electronic mail communication directed to a specific recipient and not meeting the requirements of subdivision (c) of rule 4-7.6. [Emphasis added.]
Additionally, this Committee has issued a number of opinions which preclude an attorney from using a nonlegal business as a “feeder” to the attorney’s law firm. See Ethics Opinions 88-15, 79-3, 78-14 and 73-1. In short, the inquirer and the inquirer’s firm may own an ancillary business and provide financial services to clients as suggested subject to Rules 4-1.7(b), 4-1.8(a), 4-5.7 and 4-7.4(a) as discussed above.