ETHICS DOCKET NO. 2000-34

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 2000-34

Acceptance of Referral Fee in Accountancy Practice Related to Law Practice

You have stated that you are both a Certified Public Accountant and anattorney, that you maintain both an accountancy and a legal practice, and thatunder national and state ethical guidelines for accountants, you may accept areferral fee from a stockbroker if the fee is disclosed to the accountancyclient. You inquire whether accepting a referral fee for a referral of anaccountancy client (one who is not a client of your law firm) would violate theethical rules imposed upon attorneys.

Accountants are subject to their own rules, and the Committee can offer noguidance with respect to those rules. To the extent that you are not engaging inthe practice of law with respect to a particular client, such a referral feewould not violate the Rules of Professional Conduct. However, the Rules prohibityou from accepting such a fee in relation to a legal client.

In Ethics Opinion 96-17, this Committee opined that a lawyer providing legalservices to a client and accepting a referral fee from a financial planningservices firm for referral of that client to the financial planning firm wasimpermissible under Rule 1.7, 5.4, 1.8, and 7.1. In particular, we expressedconcern that the nature of the relationship between the law firm and thefinancial planning firm was not disclosed to the clients. Rule 1.7 provides, inpart:

1. A lawyer shall not represent a client if the representation of that client may be materially limited by the lawyer's responsibilities to another client or to a third person, or by the lawyer's interests, unless;
   
   
   1. the lawyer reasonably believes the representation will not be adversely affected; and
   2. the client consents after consultation.
   3.  
2. The consultation required by paragraphs (a) and (b) shall include explanation of the implications of the common representation and any limitations resulting from the lawyer's responsibilities to another, or from the lawyer's own interests, as well as the advantage and risks involved.

We concluded that the lack of disclosure in the arrangement proposed in 96-17violated Rule 1.7(b). However, our concern was not limited to the lack ofdisclosure; we noted that even if disclosure were made, the Committee would mostlikely not approve of the proposed referral fee. We noted that the transactionamounted to an indirect economic transaction with an attorney that did notcomply with Rule 1.8 ("Conflict of Interest: ProhibitedTransactions"), that it amounted to the sharing with a non-attorney of afee received ancillary to the provision of legal services, and thus violatedRule 5.4 ("Professional Independence of a Lawyer"), and that thedescribed lawyer-client communications regarding the referral were misleadingand thus violated Rule 7.1 ("Communications Concerning a Lawyer'sServices").

In Ethics Opinion 99-18, the Committee was asked to opine on a proposedreferral fee to be paid to attorneys by an investment advisory firm. Under theproposed arrangement, the nature of the relationship was to be disclosed indetail, but we found that the arrangement was nonetheless impermissible underRule 5.4 and 1.8. See also Ethics Opinion 94-22. Rule 5.4 prohibits attorneysfrom sharing fees with non-lawyers except under narrow circumstances to ensurethat financial incentives do not infringe upon an attorney's duty of loyaltyto his or her client, compromising the attorney's legal judgment.

The Committee concludes that the arrangement that you proposed, like thatproposed in 99-18, would violate Rule 5.4. Disclosure alone does not equate tocompliance with Rule 1.7(b). Further we note that disclosure does not preventthis arrangement from violating Rule 1.7(b). Rule 1.7(b) provides thatregardless of disclosure, the lawyer must reasonably believe that hisrepresentation of a client will not conflict with his or her own interests.Entering into the proposed arrangement would give an attorney a financialincentive to refer a client to the stockbroker regardless of the individualclient's needs. Such an arrangement both compromises the attorney'sindependence and would materially limit an attorney's ability to represent hisor her clients. The Comment to Rule 1.7 recognizes this when it states "Alawyer may not allow related business interests to affect representation, forexample, by referring clients to an enterprise in which the lawyer has anundisclosed interest." See Ethic Opinion 89-1.

The acceptance of a referral fee is thus permissible with respect toaccountancy clients, and impermissible with respect to legal clients. To complywith Rule 1.7, 1.8, and 5.4, the attorney must therefore carefully differentiatebetween the two practices. The means to differentiate between the two practiceswe leave to you, with the following observations:  

1. Differentiating between the two practices becomes more difficult as the profession moves towards multi-disciplinary practice. The Committee on Multi-Disciplinary Practice of the ABA has recently issued a report recommending against Multi-Disciplinary Practice which was accepted by the ABA, whereupon the Committee was disbanded. The Multi-Disciplinary Task Force of the MSBA has recently issued proposed recommendations approving a limited form of Multi-Disciplinary Practice which has yet to be considered by the MSBA. If any changes to the existing Rules will be forthcoming, it will not be in the foreseeable future and it is the suggestion of the Committee that you stay abreast of this evolving area as it relates to the many ethical issues involved.

1. In the end of the question of whether a referral violates the Rules of Professional Conduct turns not on whether you classify the client as a legal or accountancy client, but rather, whether the activity in question falls within that realm of activities in which attorneys exclusively may engage, which would be punishable as the unauthorized practice of law if performed by one not admitted to the Maryland bar. Accordingly, you must be certain that your decision to accept a referral fee in a particular case is not driven by an arbitrary label of "accountancy client" or "legal client," but rather on a real examination of the services provided.
2.