MARYLAND STATE BAR ASSOCIATION, INC.
COMMITTEE ON ETHICS
ETHICS DOCKET NO. 2005-04
Providing Financial Services
You advise that you are a solo practitioner whose practice is concentrated in estate planning and and tax advice. You have recently been approached by a financial services subsidiary (the “Subsidiary”) of a nationwide enterprise, probably best known as a provider of home mortgages The Subsidiary, (an enterprise listed on NASDAQ) wants you to, as their literature suggests, “partner” with them to provide referrals of your clients to the Subsidiary. In exchange for referrals of your clients to the Subsidiary and assistance in setting up the client’s investment accounts, you would receive what you describe as a “commission split” or fee based upon the investments that your client makes through the Subsidiary. You would also be paid commissions by the Subsidiary for assisting your clients with completion of Mortgage applications to be submitted to the Subsidiary. Apparently while your arrangement with the Subsidiary is on-going you would deal exclusively with (refer your clients only to) the Subsidiary and no other provider of similar financial services. You believe that these transactions would not violate the Rules of Professional Conduct because of full disclosures you propose to make to your clients.
Your inquiry poses two questions for our consideration:
- Is it permitted under the Maryland Rules of Professional Conduct for you to be compensated by the Subsidiary in receiving a portion of the commissions earned by the Subsidiary on investments made by your clients after you (1) refer them to the subsidiary, (2) set up their initial investment accounts and (3) inform your clients that you get paid those commissions for referring them to the Subsidiary?
- Is it permitted under the Maryland Rules of Professional Conduct for you to earn a “commission” (which you describe as a fee which meets the reasonableness requirements) from the mortgage company for assisting a client in preparing an application for a mortgage product provided by the Subsidiary?
You have provided a copy of the 30 page brochure provided by the Subsidiary in its marketing approach to lawyers. You have also cited the several past opinions of this committee1 (Dockets 78-7, 86-23, 92-14, and 94-22) which generally provide that arrangements such as you propose would violate the rules. Your inquiry outlines your many arguments or debating points as to why you feel that your professional independence would not be impaired by forming an association with the Subsidiary.
This committee does not review solicitations to lawyers from potential marketing partners or their advertising material for possible violation of the Maryland Rules of Professional Conduct. Nor do we engage in written debates with inquirers over our interpretations of the rules, trying to justify our opinions to the inquirer.
You acknowledge that based upon a reading of our prior opinions you believe this Committee might disagree with your view that the proposed arrangement would not violate our rules of Professional Conduct. In that you are correct. You have read and quoted our prior opinions on this issue. We see no reason to change our view that such relationships would seriously impair the professional independence of the lawyer and thereby would violate rules 1.8 (f) and 5.4.
A lawyer may not enter into an exclusive relationship with enterprises such as you propose, promising to only refer his or her clients to a sole source for financial services and then receive a commission from the Subsidiary based upon the gross commission earned by the Subsidiary in dealing with the client’s needs for financial services.
We recommend that you re-read our prior opinions on this matter and proceed accordingly.
We trust that the foregoing is responsive to your inquiry.
1 The opinions of this committee are available to MSBA members at the MSBA web site: www.msba.org.
REFERENCES:
Maryland Rules of Professional Conduct: 1.8 (f), 5.4
Ethics Docket 78-7,86-23,92-14, and94-22