May a lawyer earn a continuing fee for referring a client to a financial adviser?

Plain-English summary

The proposed program paid the lawyer an ongoing share of investment management fees after a referred client opened an account with an adviser.

The answer identifies a Rule 4-1.7(b) conflict unless the lawyer fully discloses the relationship and potential benefit when making the referral. The lawyer also must select advisers by objective criteria without regard to that benefit.

Currency note

This opinion was issued in 1996, before Missouri’s 2007 revisions to the Rules of Professional Conduct. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context and verify current rules before relying on it.

Common questions

Q: What disclosure does the opinion require?

A: At referral, the lawyer must fully disclose the relationship and potential financial benefit to the client.

Q: What must govern the adviser selection?

A: Objective criteria, without regard to the lawyer’s possible financial benefit.

Background and rules framework

The answer identifies a Rule 4-1.7(b) conflict unless the lawyer fully discloses the relationship and potential benefit when making the referral. The lawyer also must select advisers by objective criteria without regard to that benefit.

Citations and references

Rules of Professional Conduct:

• Missouri Rule 4-1.7(b)

See also

• Missouri Informal Op. 960126: Referral Organization Contribution

Source

• Landing page: https://mo-legal-ethics.org/informal-opinion/960124/

Original opinion text

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

QUESTION: Attorney asks about a program involving referrals to a investment advisor and securities broker-dealer. The program would involve Attorney identifying clients who need financial management assistance and referring those clients to investment advisors associated with a particular company. Attorney is not involved in the financial management services. Attorney is paid an ongoing fee for the referral if the account is opened and thereafter monitors the client´s account as Attorney deems appropriate. The referral fee is a split of the investment management fee in an amount agreed upon by the attorney and the investment advisor. ANSWER: If Attorney participates in the program Attorney has described, Attorney will violate Rule 4–1.7(b), unless Attorney fully discloses Attorney´s relationship and the potential for Attorney to receive a financial benefit as a result of the referral to Attorney´s client at the time of the referral. Attorney must also make the referral based on objective criteria without regard to Attorney´s potential for financial benefit. The risk that Attorney will be viewed to have engaged in a conflict of interest is quite high in this type of situation.