Can a North Carolina lawyer who also sells insurance and investments charge a commission on financial products sold to his own legal clients?

Plain-English summary

The inquiring lawyer ran a financial planning firm, holding securities, insurance, and real estate licenses, and wanted to integrate that business with a new estate-planning legal practice so clients could receive "turnkey" service, including the sale of insurance and investment products from which he would earn a fee or commission. He argued that a prior opinion permitting an attorney-CPA to refer legal clients to himself as a CPA impliedly allowed an attorney to profit from selling financial products as well.

On the first question the committee answered no. The opinion quoted Rule 1.8(b), which barred a lawyer from entering a business transaction with a client for a fee or commission, in lieu of or in addition to a legal fee, where the transaction is related to the subject matter of the representation, the financial proceeds of the representation, or information acquired during it. The opinion read the rule to prevent a lawyer from exploiting financial information learned in the representation, and cited Comment [2], which admonished a lawyer who is also a securities broker or insurance agent not to sell to a client the lawyer knows has received funds suitable for investment. It distinguished 2000 Formal Ethics Opinion 9 (which allowed providing accounting services for a fee) as not creating an exception to Rule 1.8(b), and noted RPC 238 permitted a firm to offer financial products only where no fee or commission is earned. The opinion concluded the lawyer could provide financial products but could not profit from the sale through an added fee or commission.

On the second question the committee answered yes: if a third-party insurance salesman or financial advisor referred a client to the lawyer after recommending a product, the lawyer had an ethical duty to tell the client about no-commission alternatives (such as "no-load" policies and funds) where, on the facts known to the lawyer, considering those options was in the client's best interest and the disclosure was within the scope of the engagement.

Currency note

This opinion was issued in 2001, before North Carolina's adoption of the 2003 revisions to the Rules of Professional Conduct, and it cites the rule numbering then in effect (the business-transaction limitation was then Rule 1.8(b) of the Revised Rules). Subsequent rule amendments 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 who sells insurance earn a commission from selling it to a legal client?

A: No. The opinion concluded that Rule 1.8(b) barred a fee or commission on a business transaction related to the representation, so the lawyer could not profit from selling financial products to his own client.

Q: Can the lawyer still offer the products at all?

A: Yes. The opinion stated the lawyer could provide financial products, and could charge a fee for separate law-related services such as accounting or financial planning, but could not earn an additional fee or commission on the product sale itself.

Q: Did the prior attorney-CPA opinion change that?

A: No. The opinion held that 2000 Formal Ethics Opinion 9, which allowed providing accounting services to legal clients, was not intended to and did not create an exception to Rule 1.8(b).

Q: If another advisor refers a client, must the lawyer mention cheaper no-commission products?

A: The opinion answered yes where, on the facts known to the lawyer, it was in the client's best interest to consider "no-load" options and the disclosure fell within the scope of the engagement.

Background and rules framework

The opinion interpreted North Carolina Rule 1.8(b) of the Revised Rules of Professional Conduct, which addressed business transactions with clients and the use of information relating to the representation, and its Comment [2]. The current Model Rule analogue to this conduct is Model Rule 1.8 (conflicts of interest: current clients, specific rules). The opinion also relied on prior North Carolina opinions RPC 238 and 2000 Formal Ethics Opinion 9.

Citations and references

Rules of Professional Conduct:

• MR 1.8 (business transactions with clients; use of client information) / NC Rule 1.8(b) and Comment [2]

Other opinions cited:

• NC RPC 238: a firm may offer financial products only where no fee or commission is earned on the sale
• NC 2000 Formal Ethics Opinion 9: an attorney-CPA may provide accounting services to legal clients

See also

• NY State Bar Op. 711: Lawyer Selling Insurance to Clients
• NY State Bar Op. 682: Investment Advisor Referral Fee
• NY State Bar Op. 671: Insurance Referral Fee Conflict

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/2001-formal-ethics-opinion-9/

Original opinion text

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

Inquiry #1:

Attorney owns a small financial planning firm that he started prior to entering law school. Through this firm, Attorney provides investment advice, invests in securities (including stock mutual funds, and bonds) and sells insurance. Attorney maintains Series 7, 63, and 65 licenses, a NC health and life insurance license, and a NC real estate license.

Attorney is starting a legal practice. As part of his legal practice, Attorney hopes to provide estate-planning services to his clients. He would like to incorporate his legal practice with his financial planning business and provide his clients with turnkey service. Attorney believes that a quality financial plan often requires estate and tax planning and that clients will benefit from working with an attorney/financial advisor because they will receive advice from someone with experience in both legal and financial matters who provides a comprehensive approach to the management of their financial assets.

For example, Attorney will use credit shelter trusts and irrevocable life insurance trusts, business planning, tax planning, and appropriate investment products to meet the needs of the client. Attorney believes that if a client desires a single person to manage his or her entire financial situation, then these integrated services should be made available. Although there may be an increased incentive to promote the use of insurance products or other investment products if the attorney also benefits from the sale of these products, Attorney believes there is minimal difference over a period of time between charging commissions and charging hourly fees for financial planning services.

2000 Formal Ethics Opinion 9 permits an attorney who is also a CPA to refer legal clients to himself as a CPA. Attorney believes that because many accounting firms are now offering securities as part of their services, this opinion impliedly permits attorney/CPA's, who have a Series 6 license, to offer financial products and charge a fee or commission from the sale of these products.

May Attorney, with appropriate disclosures to and consent from the client, provide his estate-planning clients with financial planning services, which may include the sale of financial products, if Attorney will receive a fee or commission from the sale of such products?

Opinion #1:

No. Rule 1.8(b) of the Rules of Professional Conduct provides as follows:

During or subsequent to legal representation of a client, a lawyer shall not enter into a business transaction with a client for which a fee or commission will be charged in lieu of, or in addition to, a legal fee, if the business transaction is related to the subject matter of the legal representation, any financial proceeds from the representation, or any information, confidential or otherwise, acquired by the lawyer during the course of the representation.

This rule prevents an attorney from taking advantage of financial information received from a client during the legal relationship. If the attorney learns through confidential communications that the client has received money, the attorney may not profit from the sale of a financial product to the client. Comment [2] to Rule 1.8 specifically admonishes an attorney who is also a securities broker or insurance agent not to "endeavor to sell securities or insurance to a client when the lawyer knows by virtue of the representation that such client has received funds suitable for investment." But see RPC 238 (permitting a law firm to offer financial products to clients so long as no fee or commission is earned by the lawyer or law firm on the sale of such products).

Rule 1.8(b), however, does not prevent an attorney from providing law-related services to a legal client, so long as the attorney fully discloses his self-interest in the referral and the referral is in the best interest of the client. 2000 Formal Ethics Opinion 9 was not intended and does not create an exception to Rule 1.8(b). That opinion allows an attorney to provide accounting services to his legal clients. Nothing in the opinion specifically permits an attorney/CPA, who holds an appropriate license, to sell securities or other products to a client and profit from the sale. An attorney may, however, provide accounting, financial planning, or other law-related services to a client and charge a fee for rendering those services. An attorney may also provide financial products to the client, but may not profit from the sale of those products by charging either an additional fee or a commission.

Inquiry #2:

If a third party insurance salesman or financial advisor refers a client to Attorney after recommending that the client purchase a financial product from the third party, does Attorney have an ethical duty to tell the client that there are financial products available that can be purchased without paying a commission to the third party (e.g., "no load" insurance policies and mutual funds)?

Opinion #2:

Yes, if Attorney determines from all of the facts and circumstances known to him that it is in the client's best interest to consider the "no-load" options and the disclosure to the client is within the scope of Attorney's engagement.