Can a North Carolina estate planning firm employ a financial planner to serve its clients and offer financial products, and on what terms?

Plain-English summary

The opinion addressed an estate planning firm that wished to employ a financial planner to provide clients advice on retirement plans, charitable giving, asset allocation, and asset preservation, so that financial advice would support the clients' estate plans. The question was whether the firm could employ a financial advisor to provide financial planning to firm clients.

The opinion concluded that it could, but with conditions. A lawyer is subject to the Rules of Professional Conduct with respect to a law-related service such as financial planning when the service is provided in circumstances not distinct from the lawyer's legal services. If the financial advisor is a nonlawyer, the advisor may be a firm employee but may not become a partner, shareholder, or otherwise own an interest in the firm, and legal fees may not be shared with the nonlawyer employee, citing Rule 2.3 and Rule 3.2. The firm must have measures giving reasonable assurance that the nonlawyer's conduct is compatible with the lawyer's professional obligations, the advisor may not be held out as offering legal services, and reasonable measures must be taken to explain to the client that the advisor is a nonlawyer who cannot give legal advice.

On whether the firm could provide financial products to clients, the opinion concluded that it could, subject to the Rules, but that to avoid conflicts of interest no commission or fee may be earned by the firm, any lawyer in it, or the financial advisor on any financial product purchased by a client on the recommendation of a lawyer in the firm or the advisor, citing Rule 5.4(c).

Currency note

This opinion was issued in 1996, before the North Carolina State Bar's adoption of the 2003 revisions to the Rules of Professional Conduct. 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 Treat this page as historical context, not current guidance.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 law firm employ a nonlawyer financial planner to serve its clients?

A: Yes. The opinion concluded that an estate planning firm may employ a financial advisor, subject to the Rules, with the advisor working as an employee.

Q: Can the financial advisor own part of the firm or share in fees?

A: No. The opinion concluded that a nonlawyer advisor may not be a partner, shareholder, or owner of an interest in the firm, and legal fees may not be shared with the nonlawyer, citing Rule 2.3 and Rule 3.2.

Q: Can the firm or advisor earn commissions on financial products sold to clients?

A: No. The opinion concluded that to avoid conflicts of interest, no commission or fee may be earned by the firm, any lawyer, or the advisor on a financial product a client buys on the recommendation of a lawyer or the advisor, citing Rule 5.4(c).

Q: What must clients be told about the advisor?

A: The opinion concluded that the advisor may not be held out as offering legal services and that reasonable measures must be taken to explain to the client that the advisor is a nonlawyer who cannot provide legal advice.

Background and rules framework

The opinion applied the law-related-services principle reflected in Model Rule 5.7, together with North Carolina's then-current rules on professional independence: Rule 2.3 barring nonlawyer ownership and Rule 3.2 barring fee sharing with nonlawyers (corresponding to Model Rule 5.4), Rule 3.3 on supervising nonlawyer assistants (corresponding to Model Rule 5.3), and Rule 3.1(a) on holding out, plus the conflict limitation of Rule 5.4(c).

Citations and references

Rules of Professional Conduct:

• MR 5.7 (responsibilities regarding law-related services)
• MR 5.4 (professional independence; nonlawyer ownership and fee sharing)
• MR 5.3 (responsibilities regarding nonlawyer assistance)
• North Carolina Rule 2.3, Rule 3.1(a), Rule 3.2, Rule 3.3, and Rule 5.4(c)

See also

• NC Ethics Op. RPC 242: direct mail to new corporations and law-related services
• NC Ethics Op. 2003-10: fee sharing with a nonlawyer in a Social Security case
• NC Ethics Op. RPC 216: supervising a nonlawyer title searcher

Source

• Landing page: https://www.ncbar.gov/for-lawyers/ethics-and-governing-rules/ethics-opinions/opinions/rpc-238/

Original opinion text

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

Inquiry #1:

Attorney A's law practice is limited to estate planning. To accomplish the objectives of an estate plan, a client frequently needs financial planning and advice about financial products such as annuities, life insurance policies, securities, etc. Often, the client's current financial and insurance advisors are unfamiliar with the legal rationale of an estate plan and are, therefore, unable to meet the client's needs. Frequently, a client does not have a financial advisor. It is often difficult to identify a competent financial advisor who will not undermine the advice of Attorney A.

Attorney A believes that the employment of a financial planner by her law firm will resolve these problems. The financial planner will provide competent advice to clients who have questions about their retirement plans, charitable giving, asset allocation, and asset preservation. Providing this service at the law firm will assure achievement of the client's estate planning goals. May an estate planning law firm employ a financial advisor to provide financial planning to clients of the firm?

Opinion #1:

Yes, however, a lawyer is subject to the Rules of Professional Conduct with respect to the provision of a law related service, such as financial planning, if the law related service is provided by the lawyer in circumstances that are not distinct from the lawyer's provision of legal services to clients.

If the financial advisor is a nonlawyer, he or she may be an employee of the law firm but may not become a partner, shareholder, or otherwise own an interest in the law firm. See Rule 2.3 and comment. Moreover, legal fees may not be shared with a nonlawyer employee. Rule 3.2.

In addition, the law firm must have in effect measures giving reasonable assurance that the conduct of a nonlawyer financial advisor will be compatible with the lawyer's professional obligations. Rule 3.3. In particular, the financial advisor may not be held out as offering legal services. Rule 3.1(a). Also, reasonable measures must be taken to explain to the client that the financial advisor is a nonlawyer who cannot provide legal advice.

Inquiry #2:

May an estate planning law firm provide financial products to clients as an extension of the services available to clients?

Opinion #2:

Yes, subject to the requirements of the Rules of Professional Conduct. To avoid conflicts of interest, no commission or fee may be earned (by the law firm, any lawyer with the law firm, or the financial advisor) on any financial product purchased by a client upon the recommendation of a lawyer in the firm or the financial advisor. Rule 5.4(c).