Ezel / Ethics Opinions / NYSBA
NYSBA 2013-02-04

Can a lawyer take a finder's fee for introducing a client who needs capital to potential investors the lawyer also knows?

Short answer: Yes. A finder's fee for matchmaking is a nonlegal service the rules permit, but only if the lawyer satisfies the confidentiality, conflict, business-transaction-with-client, and reasonable-fee rules; representing both sides of the resulting deal is at best doubtful and possible only with sophisticated clients' informed consent.
Currency note: this opinion is from 2013
Subsequent statutory amendments, court decisions, or later opinions or rule amendments may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.
Disclaimer: Advisory only. Not binding precedent.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official ethics opinion. The original opinion (linked at the bottom of this page) is the authoritative source for any reliance.

NY State Bar Ethics Opinion 958: Finder's fee for introducing a client to investors

Short answer: A lawyer may accept a finder's fee for introducing a client seeking capital to prospective investors, because matchmaking is a nonlegal service the rules allow. But the lawyer must satisfy the duties of confidentiality, the conflict rules, the business-transaction-with-a-client rule, and the reasonable-fee rule, and representing both sides of the resulting transaction is doubtful, possible only with the informed consent of sophisticated clients.

Disclaimer: This is an advisory ethics opinion. Advisory opinions are not binding; they interpret the New York State Bar Association'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.

View original opinion

Plain-English summary

A lawyer asked whether he may accept a finder's fee for introducing a client or prospective client seeking start-up capital to potential investors, some of whom may be the lawyer's own current, former, or prospective clients. The committee starts with Rule 5.7, which governs nonlegal services, and concludes that introducing one client to another for a business purpose is a nonlegal service that lawyers (and nonlawyers) commonly perform. Because the lawyer intends the introductions to lead to a transaction he will handle for a legal fee, the matchmaking is "not distinct" from his legal services, so the Rules of Professional Conduct apply with full force.

The committee flags five rules as especially important. First, confidentiality: introducing one client to another requires disclosing protected information about each, so the lawyer needs the informed consent of each information owner under Rules 1.6(a), 1.9(a), and 1.18(b). Second, conflicts under Rule 1.7: where the lawyer represents only the capital-seeking client (Client A), the chief concern is Rule 1.7(a)(2), whether the finder's fee, especially if contingent on closing, creates a significant risk of impairing the lawyer's independent judgment. The committee analogizes this to a permissible success fee.

Where the lawyer would represent both the capital-seeker (Client A) and the investor (Client B) in the same deal, the committee shares the "grave doubt," expressed by Illinois opinions, that the competing loyalty and personal-interest conflicts can be reconciled, but it does not foreclose the possibility for highly sophisticated clients who negotiate the major terms themselves and use the lawyer as a scrivener, with informed consent.

Third, Rule 1.8(a) applies because the finder's-fee agreement is a business transaction with the client: the terms must be fair and reasonable, fully disclosed in writing, with advice to seek independent counsel. Fourth, Rules 1.1(a) and 1.4 require the lawyer to warn the client that the matchmaking activity may not enjoy the protections of the attorney-client relationship. Fifth, the lawyer's total compensation, including the finder's fee, is measured against Rule 1.5(a)'s bar on an excessive fee. The committee distinguishes prohibited arrangements where a lawyer takes a fee from a nonclient third party for referring clients out, and reaffirms that conduct it has long barred (lawyer also acting as real estate, insurance, or securities broker in the same deal) involves services that are genuinely "distinct."

In practice

The opinion holds that, under the New York rules as they stood in 2013, a lawyer may accept a finder's fee from a client for introductions that lead to a transaction the lawyer handles, provided the lawyer obtains informed consent for any confidential disclosures, clears the Rule 1.7(a)(2) personal-interest conflict (treating a contingent finder's fee like a success fee), complies with Rule 1.8(a) for the fee agreement, warns the client about the limits of attorney-client protection, and keeps total compensation non-excessive under Rule 1.5(a). The committee identifies dual representation of both sides of the resulting deal as the hardest case, permissible only for sophisticated clients with informed consent.

Common questions

Q: Is a finder's fee for connecting a client with investors a legal fee or something else?

A: It is payment for a nonlegal service. Per paragraphs 3 to 6, the committee treats matchmaking as a nonlegal service under Rule 5.7, but because it is not distinct from the lawyer's legal work, the conduct rules fully apply.

Q: Can the lawyer represent both the company seeking capital and the investor in the same transaction?

A: Only in narrow circumstances. Paragraph 11 expresses grave doubt that the conflicts can be reconciled but does not foreclose it for highly sophisticated clients who negotiate the key terms themselves and give informed consent.

Q: Does the finder's-fee agreement itself trigger any special rule?

A: Yes, Rule 1.8(a). Per paragraph 12, the agreement is a business transaction with the client, so its terms must be fair, reasonable, disclosed in writing, with advice to seek independent counsel.

Q: Can a contingent finder's fee be a problem?

A: It can. Paragraph 10 explains that a fee contingent on closing creates a personal financial interest in completing the deal; the lawyer may proceed only if a reasonable lawyer would conclude there is no significant risk that interest will impair independent judgment.

Background and rules framework

The opinion interprets Rule 5.7 (Model Rule 5.7, responsibilities regarding nonlegal services) as the gateway, then applies the confidentiality rules (Rules 1.6, 1.9, 1.18), the concurrent-conflict rule (Model Rule 1.7), the business-transaction-with-a-client rule (Model Rule 1.8(a)), the competence and communication rules (Rules 1.1, 1.4), and the reasonable-fee rule (Model Rule 1.5(a)).

Citations and references

Rules of Professional Conduct:

  • MR 5.7 / NY Rule 5.7(a), (c) (nonlegal services; when conduct rules apply)
  • MR 1.7 / NY Rule 1.7(a)(2) (personal-interest conflict)
  • MR 1.8 / NY Rule 1.8(a) (business transactions with a client)
  • MR 1.5 / NY Rule 1.5(a) (excessive fees)
  • NY Rules 1.6(a), 1.9(a), 1.18(b) (confidentiality to clients, former clients, prospective clients)

Other opinions cited:

  • Illinois State Bar Op. 98-03 and 94-21: conflicts in pairing client-inventors with client-investors.
  • Ohio Sup. Ct. Bd. Op. 2003-1: percentage fee for introducing a buyer or seller, payable by the represented client only.
  • N.Y. State 752 (2002): categorical bars on combining certain distinct nonlegal services with legal services.
  • N.Y. State 845 (2010); N.Y. State 913 (2012): related fee and business-transaction guidance.

See also

Source