ETHICS DOCKET NO. 2000-35

MARYLAND STATE BAR ASSOCIATION, INC.

COMMITTEE ON ETHICS

ETHICS DOCKET NO. 2000-35

Conflict of Interest: Free Referral Arrangement From Financial Advisory Firm to Local Lawyers

The Committee on Ethics of the Maryland Bar Association has considered your recent inquiry and I have been designated to respond on behalf of the Committee.

You have stated that you and several other local lawyers have been approached by the accounting arm of a national financial services company, (the "firm"), to participate in a referral service which would be offered at no cost to accounting clients of the firm, and at no cost to you, other than their request that you share in the cost of printing the informational booklets and that you participate as a panelist at seminars offered to the public.

As you describe it, the accounting services division advertises through seminars and other publications, that they offer estate, retirement, and investment services. A toll free number is provided with all advertising and seminar materials for persons who desire more information or assistance. As mentioned above, they would ask that you participate in seminars and panel discussions, and that you share in the cost of printing the information booklets and/or seminar materials that would direct people to the toll free number.

In the event that someone does dial the toll free line and asks about legal services associated with probate, the person would be advised that the firm provides accounting services, but not the legal services associated with probate. The operator would then refer the caller to a local attorney like yourself who could assist them with the legal issues.

If the caller, now a potential client, were to retain the services of the local attorney, he or she would enter into a retainer agreement directly with that attorney. All fees approved by the Orphan's Courts would be paid directly to the attorney. The attorney would not share any of these fees with the financial services firm.

The financial services firm would prefer that the local attorney use the accounting firm's services to assist in the preparation of any tax returns and accounting records, and use the financial service firm's services to liquidate investments, etc., related to the administration of the estate. However, you would not be required to do so.

The financial services firm's logo would not appear anywhere in the local attorney's office, forms, retainer, communications, letterhead, etc.

You have indicated that: (1) you do not believe there is an advertising issue since your name would not appear on the advertising; (2) disclosure would not be an issue since the client would be contracting directly with you; and (3) independence would not be an issue since you are not required to use the firm's services.

The issue of the propriety of lawyers engaging in business with, or receiving referrals from non-lawyers has been addressed in several Opinions of the Committee. See, 1996-17, 2000-34 and 2000-40.

In these opinions we expressed concern that a referral arrangement might be impermissible under Rules 1.7, 5.4, 1.8, and 7.1.

First, we expressed concern that Rules 1.7, 1.8 and 5.4 might be implicated if the nature of the relationship between you and the referring party was not disclosed. You indicated in your query that you did not think disclosure was necessary since you would share no fee with the firm, and the client would contract with you directly. However, since you are paying for the advertising costs which would eventually lead to client referrals, we believe that this is a relationship which should be disclosed to the client (including your participation in the advertising).

However, we also noted in our earlier decisions, that even if you undertook such disclosure, Rule 1.7 still might be violated as it provides that regardless of disclosure, the lawyer must reasonably believe that his representation of a client will not conflict with his or her own interests.

At first blush, it appears that your arrangement is designed to avoid the conflict concerns expressed in the above-referenced opinions since the firm will not pay you a referral fee, and since you are not required to refer your clients to the firm for the provision of financial services. Therefore, you have argued, the arrangement would not compromise your independent judgment.

However, you did indicate that the firm would prefer that you use their services. Therefore, while you do not have a direct fee-sharing agreement or direct financial incentive to refer your clients to the firm, there may still be some indirect economic benefit to you for doing so. For example you might be more likely to remain on the firm's list of local attorneys for referrals and be asked to speak at seminars full of potential clients if you use the firm's financial services. Hence, under these and other circumstances a situation could arise which might compromise or interfere with your professional judgment.

Therefore, while you will not have a direct financial incentive, your arrangement still presents serious concerns about your ability to truly exercise your professional judgment in an independent manner, free of constraints placed on you by non-lawyers or by your business arrangement.

You have also indicated that you don't think the content of the advertising is an issue since your name will not appear anywhere on it, even though you will contribute to its cost. However, the fact that your name does not appear on it does not mean that it is not "your" advertising materials, as defined by the Rules. Rather, your financial contribution toward the advertising and the resulting referrals you may receive makes it your advertising. Therefore, it must comply with the provisions of Rules 7.1 and 7.2.

As you have described it, the advertising appears to implicate Rule 7.1 in that it seems misleading in two ways. First, it represents that the accounting firm will offer estate, retirement, and investment services, but fails to indicate that they are unable to provide legal services relating to the probating of an estate, and that all such services will be referred to local counsel. Second, the advertising fails to disclose the fact that local counsel have contributed to the costs of the advertising materials.

Further, even if you did not contribute to the cost of the seminar advertising materials, Rule 7.2(c) would be implicated. While you would not receive direct monetary compensation for your agreement to participate as a panel member in their seminars, your agreement could be seen as one in which you give something of value to another person for recommending your services. E.g., you speak at the seminars in exchange for the fee-free advertising you get when they refer someone to you who has called their "800" number.

The Committee believes that your proposed referral arrangement presents many serious concerns about your ability to comply with the Maryland Rules of Professional Conduct, and therefore concludes that it violates the Rules.

REFERENCES:
Opinions of the Maryland Ethics Committee: 1996-17, 2000-34 and 2000-40.
Maryland Rules of Professional Conduct 1.7, 1.8, 5.4, 7.1 and 7.2.