Can a lawyer refer law clients to a financial-planning business the lawyer owns, and take legal-work referrals back from it?

Plain-English summary

An estate-planning lawyer was also the sole shareholder of a closely held financial-planning business operating under a trade name and staffed by certified financial planners. The lawyer asked whether it was ethical to refer law clients to the financial-planning business and what disclosures were required.

The opinion concluded the lawyer was simultaneously engaged in the practice of law and a nonlaw business, so referring clients to that business was a business transaction with the client governed by MRPC 1.8(a). Following RI-135 (selling insurance to a client) and RI-5 (the lawyer's own title-insurance company), the lawyer must make the transaction fair and reasonable, fully disclosed in writing, give the client a reasonable chance to seek independent counsel, and obtain written consent. The lawyer must also protect the law clients' confidences under MRPC 1.6(b) and (d), and provide enough information under MRPC 1.2 and 1.4 for informed client decisions while exercising independent professional judgment under MRPC 2.1.

On conflicts, the opinion concluded the lawyer must comply with MRPC 1.7 and 1.9 and must not let the representation be materially limited by the nonlaw business interest; if the financial advice or services are challenged, the lawyer's ownership interest would make independent legal advice on that matter impossible (MRPC 1.7(b)), so the lawyer may not represent a client in a dispute over the nonlaw business's services. The opinion also addressed referrals running the other way: the lawyer's ownership must be disclosed when a customer of the nonlaw business seeks legal services, the legal services may not be made part of the contract with the nonlaw business (MRPC 5.5, 7.2(c), MCL 450.681), and the lawyer must exercise independent judgment about whether to represent the customer and what services are needed, uninfluenced by the nonlaw business's recommendation. The lawyer is also barred from in-person or telephone solicitation of the nonlaw business's customers unless they are also current or former law clients (MRPC 7.3(a)).

Currency note

This opinion was issued in 1994, before later amendments to the Michigan Rules of Professional Conduct. MRPC 1.8, 1.7, 7.2, 7.3, and the related rules have since been amended, and subsequent rule changes or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer send law clients to a financial-planning business the lawyer owns?

A: Yes, the opinion concluded, if the lawyer treats it as a business transaction with the client under MRPC 1.8(a): full written disclosure of the interest, fair terms, a chance to seek independent counsel, and written consent.

Q: Can the lawyer also take legal-work referrals from the nonlaw business?

A: Yes, the opinion concluded, provided the lawyer's interest is disclosed, the legal services are not part of the nonlaw contract, and the lawyer exercises independent judgment about representation.

Q: Can the lawyer represent a client in a dispute about the nonlaw business's services?

A: No. The opinion concluded the lawyer's ownership interest makes independent advice impossible under MRPC 1.7(b), so the lawyer may not take that representation.

Q: Can the lawyer cold-call the nonlaw business's customers about legal services?

A: No. Under MRPC 7.3(a) the opinion concluded the lawyer may not solicit those customers in person or by phone unless they are also current or former law clients.

Background and rules framework

The opinion applied Michigan's business-transaction, confidentiality, and conflict rules. MRPC 1.8(a) (Model Rule 1.8) governs business transactions with a client and acquiring interests adverse to a client. MRPC 1.6(c) and (d) (Model Rule 1.6) require protecting client confidences across a dual practice. MRPC 1.7(b) and 1.9 (Model Rules 1.7 and 1.9) govern current and former-client conflicts. MRPC 2.1 (Model Rule 2.1) requires independent professional judgment. MRPC 5.5, 7.2(c), and 7.3(a) (Model Rules 5.5, 7.2, 7.3) govern unauthorized practice, paying for recommendations, and solicitation. The opinion relied on RI-5, RI-135, and RI-187, and on MCL 450.681.

Citations and references

Rules of Professional Conduct:

• MR 1.4 / MRPC 1.4 (communication)
• MR 1.6 / MRPC 1.6(c), (d) (confidentiality across a dual practice)
• MR 1.7 / MRPC 1.7(b) (material-limitation conflicts)
• MR 1.8 / MRPC 1.8(a) (business transactions with a client)
• MR 1.9 / MRPC 1.9 (former-client conflicts)
• MR 2.1 / MRPC 2.1 (independent professional judgment)
• MR 5.5 / MRPC 5.5 (unauthorized practice)
• MR 7.2 / MRPC 7.2(c) (paying for recommendations)
• MR 7.3 / MRPC 7.3(a) (solicitation)

Statutes:

• MCL 450.681 (corporate practice of law)

Other opinions cited:

• Michigan RI-5: lawyer ownership interest in a title-insurance company
• Michigan RI-135: lawyer also acting as insurance agent

See also

• Mich Ethics Op. RI-5: lawyer ownership interest in a title-insurance company
• Mich Ethics Op. RI-135: lawyer as insurance agent selling and soliciting
• Mich Ethics Op. RI-187: confidentiality of a firm's nonlawyer lobbyist

Source

• Landing page: https://www.michbar.org/opinions/ethics/numbered_opinions?OpinionID=1060&Type=6

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

RI-190

February 10, 1994

SYLLABUS

A lawyer may refer clients to a business which provides nonlaw services and in which the lawyer has a financial interest, provided that the lawyer discloses the lawyer's interest in the nonlaw business, advises that the client is entitled to seek services from any other independent nonlaw service company, and advises the client of the opportunity to obtain independent counsel before deciding whether to seek services from the lawyer's nonlaw company.

A lawyer may accept referrals from a nonlaw business owned by the lawyer, provided that the lawyer's interest in the nonlaw business is disclosed to the client, the legal services are not part of the contract with the nonlaw business, and the lawyer exercises independent professional judgment regarding whether to represent the customer and what legal services the customer should have, without being influenced by whatever the nonlaw business has recommended to the customer.

A lawyer may not represent a client in a dispute involving the services provided by the lawyer's nonlaw business.

References: MRPC 1.4, 1.6(c) and (d), 1.7(b), 1.8(a), 1.9, 2.1, 5.5, 7.2, 7.3(a); RI-5, RI-135; MCL 450.681.

TEXT

A lawyer who regularly practices in the estate planning field is also the sole shareholder of a closely-held financial planning business operated under a trade name and staffed by three certified financial planners. The lawyer questions:

• Whether it is ethically permissible to refer law practice clients to the financial planning business for service.

• What disclosures must be made regarding the lawyer's interest in the financial planning business.

While the lawyer does not directly provide the nonlaw financial planning services, the lawyer is the sole shareholder and, as a result, is considered to be simultaneously engaged in the practice of law and in a nonlaw business. In RI-135, the Committee opined that a lawyer who sells insurance to a law client is engaging in a business transaction with the client and must comply with the provisions of MRPC 1.8(a) which states:

"(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:

"(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

"(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

"(3) the client consents in writing thereto."

In accord RI-5, the lawyer may not recommend or allow the lawyer's own title insurance company to undertake to provide the needed services to the lawyer's client unless the lawyer complies with MRPC 1.8(a).

Therefore when referring clients to the nonlaw business the lawyer must disclose the lawyer's interest in the nonlaw business and otherwise comply with MRPC 1.8(a). MRPC 5.3, RI-187.

The lawyer has certain obligations when referring a client to the lawyer's nonlaw business. A lawyer with dual occupations must ensure that the confidences of the law clients are not compromised by the operation of the nonlaw business. MRPC 1.6(b) and (d) (duty to protect client confidences and secrets); RI-135.

MRPC 1.2 and 1.4 require a lawyer to provide a client with sufficient information and explanations to enable the client to make informed decisions regarding the representation. MRPC 2.1 states:

"In representing a client, a lawyer shall exercise independent professional judgment and shall render candid advice. In rendering advice, a lawyer may refer not only to law but to other considerations such as moral, economic, social, and political factors that may be relevant to the client's situation."

The lawyer must also comply with the ethics rules regarding conflicts of interest, MRPC 1.7 and 1.9. These rules govern legal representation of persons having interests adverse to current or former clients. The lawyer must take care not to allow the representation of the lawyer's law clients to be materially limited by the lawyer's nonlegal business interests. If the financial advice or services rendered by the nonlaw business are challenged, the lawyer's personal interest as owner of the nonlaw business will make it impossible for the lawyer to render independent legal advice to client/customers regarding the matter. MRPC 1.7(b); RI-5, RI-135.

The lawyer's relationship with the financial services company must also be disclosed if a customer of the nonlaw business subsequently or concurrently seeks legal services from the law firm. Since the nonlaw business is operated under a trade name and the lawyer apparently owns, but does not work at the nonlaw business, there would be no reasonable means by which a customer of the nonlaw business would become aware of the lawyer's ownership without the affirmative disclosure. The lawyer is prohibited from assisting the nonlaw business in delivering legal services to customers; although the nonlaw business may refer customers to the law firm for legal services with an appropriate disclosure of the lawyer's interest, the legal services may not be made part of the contract with the nonlaw business. MRPC 5.5, 7.2(c), MCL 450.681. The lawyer must remain free to exercise independent professional judgment regarding whether to represent the customer and what legal services the customer should have, without being influenced by whatever the nonlaw business has recommended to the customer.

The lawyer is prohibited from soliciting legal business in person or by telephone from current or former customers of the nonlaw business unless the customer is also a current or former law client of the lawyer. MRPC 7.3(a), RI-135.

In conclusion, a lawyer may refer clients to a business which provides nonlaw services and in which the lawyer has a financial interest, provided that ethics rules regarding business transactions with clients, confidentiality, and conflicts of interest are observed.