MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2001-17
Dual Practice of Law and Investment Advice
You have advised that you are a solo practitioner engaged in the general practice of law through your professional association. Your law office is located in a building which is owned by you and you lease office space to one other attorney who conducts a separate practice of law in your building. There are separate signs on the outside of your building for your firm and for the tenant’s practice. It is your intention to open as a “separate and distinct enterprise” an investment advisory business. Under the auspices of a broker, you would propose to act as an investment advisor with services limited to advice and the sale of managed mutual find accounts. You would receive commissions on any sales made through the broker. As part of your duties, you would maintain separate accounts for the investment clients and would keep all investment files separate and apart from your law practice.
It is your intention to conduct the investment advisory business out of the same office as your law practice. You would be the only investment advisor in this new entity, but you would plan to use your two paralegals as employees of the new business.
A separate sign will be placed on the front of your building with the yet to be selected name of the business, designating your name as the investment advisor. You have advised that you do not intend to actively solicit your law practice clients to engage your services as an investment advisor. However, if they see the sign in front of the building or other advertisement that you are an investment advisor, you recognize they may inquire about that service. Such individuals will be advised that your separate business receives commissions for any sales made as a result of your advice. You would have such clients enter into a separate contractual agreement that you will act solely as an investment advisor and not as an attorney in that relationship.
You have asked for guidance from the Ethics Committee on the following:
1. May you use your existing law office to conduct your investment advisory service?
2. May you place a separate sign on the front of your building indicating that you provide investment advisory services?
3. May you provide investment advisory services to existing clients, who consent to receiving investment advice, as distinguished from legal advice, pursuant to a separate contractual arrangement?
4. Would it be permissible in separate and distinct advertisements to advertise, utilizing your name, that you do provide investment advisory services, as long as you do not indicate that you are an attorney?
This Committee recently considered an inquiry concerning the ethical propriety of a law firm’s proposed relationship with a real estate consulting brokerage firm. In Ethics Docket 2000-40, we referred to a number of prior opinions which dealt with ethical issues that are raised from the conduct of an ancillary business by a lawyer or law firm. We invite your attention to that opinion in connection with your proposed venture. The Committee has opined on a number of occasions that the conduct of an ancillary business is not per se unethical. See, for example, Ethics Dockets 2000-34, 94-22 and 99-18. As we said in Ethics Docket 2000-40:
Because of the wide-ranging affects of this type of arrangement, there are multiple rules in the Maryland Lawyer’s Rules of Professional conduct which must be addressed in this type of situation. Those Rules include Rule 1.4 – Communication, Rule 1.5 – Fees, Rule 1.6 – Confidentiality of Information, Rule 5.3 -Responsibilities Regarding Non-lawyer Assistants, Rule 5.4 -Professional Independence of a Lawyer, Rule 5.5 – Unauthorized Practice of Law and Rules 7.1 – 7.5 – Information about Legal Services. This list of applicable rules is not intended to be exhaustive, but is merely set forth to point out the numerous issues that must be addressed when entering into the type of arrangement which you propose.
In your inquiry, you have attempted to address several of these issues. In addition, you have attempted to address the requirements of Rule 1.7. In particular, Rule 1.7 (b) and (c) provides in part:
(b) 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 own interests, unless:
(1) the lawyer reasonably believes the representation will not be adversely affected; and
(2) the client consents after consultation.
(c) 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 advantages and risks involved.
Even if we were to assume that your separate financial advisory contract with your law firm clients met the requirements of Rule 1.7, this Committee remains concerned that this type of arrangement is not ethically permissible. This Committee has previously stated that an attorney’s selling of life insurance to one of his legal clients would be a violation of Rule 1.7 (b), despite full disclosure. See Ethics Docket 92-14. See also Rule 1.8; Ethics Docket 96-17 (Lawyer and Financial Planning Organization); Ethics Docket 94-22 (Dual Practice of Law and Financial Planning); compare Ethics Docket 2000-34 (Acceptance of Referral Fee in Accountancy Practice Related to Law Practice); Ethics Docket 99-18 (Receipt of Referral Fee from Investment Advisory Finn).
Therefore, this Committee would respond to your third question in the negative if the investment advice were related to the legal services furnished to the clients. At this time the Committee does not believe it is necessary to respond to questions 1, 2 and 4. However, we would suggest you review the prior Opinions referred to above for guidance. We trust that this has been responsive to your inquiry.
This opinion, 01-17 makes references to opinions 92-14, 94-22, 96-17, 99-18, 2000-34 and 2000-40.
Other References:
Rule 1.7 (b) and (c); Rule 1.8 of the Maryland Rules of Professional