I would like to take this opportunity to announce that I am once again a Certified Financial Planner (CFP). I took a brief hiatus from this designation but now have re-qualified. I am now entering my 15th year of CFP-dom.
Interestingly, some would question whether I should even mention being a CFP on what I deem a law firm website. The concern is that I do not confuse potential clients into thinking that the two businesses are related. This issue reminds me of the time I was offered a position at a credit counseling firm with the condition that I do not hold myself out as an attorney. Or the time a relative was granted entry into an exclusive country club as long as he didn’t reveal that his wife was Jewish.
The “CFP” is a designation given by the Certified Financial Planner Board of Standards (CFP Board) to individuals who have met certain educational and experience requirements, including passing a big, comprehensive exam. By the time you get the CFP, you have learned how to holistically analyze and integrate major financial strategies into an overall plan for just about anyone who wants you to do it for them. The major disciplines covered include investments, insurance, taxes, retirement, and our old friend, estate planning.
So, cool, does this now mean that any of my clients can not only get a will or trust, but also have the ability to receive my sage wisdom regarding Modern Portfolio Theory, Roth IRAs, term vs. permanent life insurance, etc., etc., etc.? Surprisingly, the answer is “nope, not at this point”.
Instead, this development perhaps opens up a Pandora’s Box involving the ethical dilemmas of “Multi-Disciplinary Practices” (“MDPs”). Below, let’s define and discuss these issues, and show why as of this point, Virginia lawyers offering legal services cannot share an umbrella with non-lawyers offering non-legal services such as financial planning, accounting, banking, realty, etc.
Multi-Disciplinary Practice Defined
An MDP is an entity that includes lawyers and non-lawyers which holds itself out as providing both legal and non-legal services. Because legal ethics rules prevent lawyers from splitting legal fees with non-lawyers, MDPs are presently prohibited in a majority of U.S. states, including Virginia.
James McCauley, the Ethics Counsel of The Virginia State Bar, has posted and recently updated an excellent and thorough examination of MDPs on the Virginia Bar website. The article lists three main ethical concerns for any MDP for any lawyer wanting to combine with another profession, summarized below. I’ll use my own financial planning situation to illustrate these principles, but remember that these concerns apply to the many other non-legal disciplines as well.
Conflicts of Interest
Unlike most professions, lawyers do not have an arm’s-length relationship with clients or customers. Instead, lawyers owe clients a duty of loyalty, meaning that lawyers are not supposed to further their own interests at the expense of the client.
- Example: After I draft his will, a shepherd asks me if I could refer him to a financial planner with an expertise in issues related to shepherds. I recommend myself, even though I lack such knowledge. This would be unethical as I am putting my own interests above the shepherd, as well as his family.
- Solution: Inform client of right to obtain financial services elsewhere, and get client consent after full disclosure of any personal, business or financial interest.
All state ethics rules prevent lawyers from revealing any client confidences unless authorized by the client. The standards protecting confidentiality are much different for lawyers than they are for non-lawyers. Lawyers are actually protected from revealing confidential information, even to a court. Financial planners and other professionals do not have this same level of protection.
- Example: Say I recommend and set up a secret offshore account for a client. Further, let’s say this client gets married and then gets divorced. If the client’s ex-spouse subpoenas my records, do I have to give them up? Is setting up a secret offshore account a legal function that is protected even from courts or a financial planning function that is not so protected?
- Solution: Clear explanation to the client as to whether a function is legal or non-legal.
Sharing of Fees with Non-Lawyers
With few exceptions, a lawyer may not share a legal fee with a non-lawyer because lawyers also have a duty of independent professional judgment to their clients. An MDP can affect the lawyer’s decision-making ability, as there would be a natural tendency towards recommending services and products within one’s own firm.
- Example: Same as the conflicts of interest example, where I recommend myself as a CFP to a shepherd. By recommending myself, my natural bias has clouded my judgment to look for better options for our sheep-minding friend.
- Solutions: Maintain separate entities for the two functions and don’t split fees between them.
Separate Businesses, no MDP
As a result of these concerns, I will wear two hats, despite my belief that these two disciplines naturally tie together.
In addition to my law firm, I also own a separate financial planning firm, which is held as a limited liability company. Moving forward, any client who wants both types of services will: a) need to sign separate agreements for the two entities, b) receive notification of their right to obtain financial services elsewhere, and c) need to consent in writing that they understand any potential conflict of interest through my providing the two separate services.
To any social media youngsters listening at home who are considering adding a non-legal service to your own law firm, do keep the necessity of this arrangement in mind.
- The Art of Helping Clients (lawprofessors.typepad.com)
- Designating Beneficiaries (deathandtaxesblog.com)
- Sufficiency of Independent Legal Advice (estatelaw.hullandhull.com)