May a California estate-planning lawyer be a salaried employee of a financial-planning company that bills its customers a percentage of their estate covering both the legal work and the company's financial advice?
LACBA Ethics Opinion 510: Lawyer Salaried by a Financial-Planning Company
Short answer: Under former California Rule 1-320(A) as analyzed in this opinion, an estate-planning lawyer may not accept salaried employment with a financial-planning company that (1) places the lawyer in an attorney-client relationship with the company's customers, (2) charges customers a percentage of their estate covering both the legal work and the company's other services, and (3) does not account for the legal fees separately and pay them only to the lawyer. The committee characterizes the arrangement as indirect fee sharing with non-lawyers, and notes that the structure may also implicate former Rules 1-310 (no partnership with non-lawyers), 1-600, 3-310(F), 4-200, and 1-400.
Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the Los Angeles County Bar Association's view of California's rules of professional conduct and are persuasive authority. This summary is for research purposes only and is not legal advice. Verify current rules before acting on any specific guidance.
About this page: The plain-English summary and Q&A below were written by Ezel based on the official opinion. We do not reproduce the opinion text on this page; follow the linked source for the official text, which controls.
Plain-English summary
The committee analyzes a proposed arrangement in which an estate-planning lawyer would become a salaried employee of a financial-planning company. The company would provide both financial-planning services and legal services to its customers; the lawyer would be in an attorney-client relationship with those customers directly. The company would charge customers a percentage of the total estate as a single bundled fee, regardless of whether legal services were rendered, and pay the lawyer a fixed salary.
The committee concludes the arrangement violates former Rule 1-320(A)'s prohibition on direct or indirect fee sharing with non-lawyers. Once the lawyer renders legal services to the customers, part of the percentage-of-estate fee is necessarily a legal fee. Because the company collects the fee, retains the portion not paid to the lawyer as salary, and is owned (at least in part) by non-lawyers, those non-lawyer principals receive indirect compensation from legal fees. The committee anchors this analysis in State Bar Formal Opinion 1997-148 (no payment-arrangement subterfuge), Cain v. Burns (1955) (investigator paid from "general fund" derived from legal fees was still improper splitting), and Gassman v. State Bar (1976).
The committee distinguishes Gafcon (insurer's salaried defense counsel) on two grounds: the insured does not pay a legal fee, and the insurer has its own direct interest in the underlying matter. It also engages ABA Formal Opinion 95-392, which states that a corporation "may not reap profits from the work of its in-house attorneys"; if the company's legal fees were paid solely to the lawyer with no company profit, Rule 1-320 would not be violated, but the proposed bundled-fee structure does not satisfy that condition.
The committee notes parallel rules engaged by the arrangement: former Rule 1-310 (partnering with non-lawyers) per State Bar Formal Opinion 1995-141; former Rule 1-600 (non-governmental entities furnishing legal services and interference with independent judgment); former Rule 4-200 (unconscionability, hard to evaluate when fees are not broken out); former Rule 3-310(F) (third-party compensation requires that no interference exist, that confidentiality be preserved, and that the client give informed written consent); and former Rule 1-400 (advertising and solicitation, if the company markets legal services). The opinion also cites People v. Volk (Colo. 1999), in which an attorney was disciplined for aiding a non-lawyer entity's unauthorized practice of law in selling living trusts.
The committee discusses LACBA Opinion 431 (1984), in which a 20% override on legal-fee billings collected by a business-management company was characterized as fee-splitting. It distinguishes LACBA Opinion 457 (1990) on bonuses to paralegals not based on a percentage of the attorney's fees, which are permitted.
In practice
The opinion holds that, under former California Rule 1-320 as it stood in 2003, a lawyer cannot be salaried by a non-lawyer-owned company that delivers bundled legal and non-legal services to the company's customers without separately accounting for and remitting all of the legal fees to the lawyer. The committee identifies the curative features: separate accounting, full direction of legal fees to the lawyer, and no company profit from the legal services. Even with those features, the committee notes that Rules 1-310, 1-600, 3-310(F), 4-200, and 1-400 still must be evaluated separately.
California's professional-conduct rules were revised effective November 1, 2018; former Rule 1-320 corresponds substantially to current Rule 5.4 (professional independence of a lawyer), and former Rules 1-310, 1-600, and 3-310(F) map to the current 5.4 framework and 1.8.6. The committee's analysis predates the 2018 revisions.
Common questions
Q: Can a California lawyer be salaried by a financial-planning company that delivers legal services to the company's customers?
A: Per the opinion, no, where the company charges a bundled fee covering both legal and non-legal services and the company retains any portion. The arrangement is indirect fee sharing under former Rule 1-320 because the non-lawyer owners receive a fund derived in part from legal fees.
Q: What if the company unbundles the legal fee and pays all of it to the lawyer?
A: Per the opinion's reference to ABA Formal Opinion 95-392, an arrangement in which the legal fees were paid solely to the lawyer and the company did not profit from those fees would not violate Rule 1-320. The committee notes that other rules (1-310, 1-600, 3-310(F), 4-200) would still require separate evaluation.
Q: Does the lawyer's salary being fixed rather than tied to legal-fee hours cure the problem?
A: Per the opinion, no. The committee follows Cain v. Burns (1955), under which payment from a "general fund" derived from legal fees still constitutes splitting. The "indirectly" language in former Rule 1-320 reaches the same conduct.
Q: Does the analysis change if the lawyer is in-house at a company that benefits from his work?
A: Per the opinion's discussion of Gafcon, the in-house insurance-defense context is distinguishable because the insured pays no legal fee and the insurer has a direct pecuniary interest. The opinion does not opine on other in-house contexts on its facts.
Q: What other ethical rules may the arrangement implicate?
A: Per the opinion, former Rule 1-310 (partnering with non-lawyers), Rule 1-600 (interference with professional judgment), Rule 3-310(F) (third-party compensation requirements), Rule 4-200 (unconscionability), and Rule 1-400 (if the company advertises legal services).
Background and rules framework
The opinion interprets former California Rules of Professional Conduct 1-310 (no partnership with non-lawyers), 1-320 (no fee sharing with non-lawyers, including indirectly), 1-400 (advertising and solicitation), 1-600 (third-party legal-services arrangements), 3-310(F) (third-party compensation), 4-200 (unconscionable fees), and Bus. & Prof. Code section 6068(e) (confidentiality). It engages ABA Model Rule 5.4 and contrasts with the D.C. Rules' approach to non-lawyer ownership of practice entities. It anchors the indirect-sharing analysis in Gassman v. State Bar (Cal. 1976), Gafcon, Inc. v. Ponsor & Associates (2002), Cain v. Burns (1955), and People v. Volk (Colo. 1999).
Citations and references
Rules of Professional Conduct:
- Former California Rule 1-310 (no partnership with non-lawyers)
- Former California Rule 1-320 (no fee sharing with non-lawyers)
- Former California Rule 1-400 (advertising and solicitation)
- Former California Rule 1-600 (third-party legal-services arrangements)
- Former California Rule 3-310(F) (third-party compensation)
- Former California Rule 4-200 (unconscionable fees)
- ABA Model Rule 5.4
- D.C. Rules of Professional Conduct 1.7, 5.4 (contrasted)
Statutes:
- Bus. & Prof. Code section 6068(e) (confidentiality)
- Bus. & Prof. Code section 6000 et seq.
Cases:
- Gassman v. State Bar, 18 Cal.3d 125 (Cal. 1976), purposes of fee-sharing prohibition
- Cain v. Burns, 131 Cal.App.2d 439 (1955), payment from "general fund" derived from legal fees
- Gafcon, Inc. v. Ponsor & Associates, 98 Cal.App.4th 1388 (2002), in-house insurance defense counsel
- People v. Volk, 805 P.2d 1116 (Colo. 1999), attorney aiding non-lawyer entity's unauthorized practice
Other opinions cited:
- Cal. State Bar Formal Opinion 1999-154: company performing legal services cannot share fee with non-lawyer
- Cal. State Bar Formal Opinion 1997-148: marketer cannot share fees with attorney even when collecting fee from client
- Cal. State Bar Formal Opinion 1995-141: structural separation required for lawyer providing non-legal services through non-lawyer entities
- LACBA Formal Opinion 457 (1990): paralegal bonus not based on fee percentage is permitted
- LACBA Formal Opinion 431 (1984): 20% fee override on legal-billing hours is fee splitting
- ABA Formal Opinion 95-392: corporation cannot reap profits from in-house attorneys' work
See also
- LACBA Opinion 470: Year-End Bonus to Of-Counsel
- LACBA Opinion 503: Limits on Payment of Compensation Under Rule 5.4
- LACBA Opinion 467: Referral Fees to Suspended Attorneys
Source
- Landing page: https://lacba.org/?pg=ethics-opinions
- Original PDF: https://lacba.org/docDownload/2010595