Can an Ohio lawyer take a fee from a financial services company for referring clients who need financial services?
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This page answers the general question as of 2000. Ezel answers yours: whether it's allowed on your facts, under the current Ohio Rules of Professional Conduct, with citations.
Currency note
The Board withdrew this opinion by Advisory Opinion 2019-10 on October 4, 2019. Because the opinion has been withdrawn, it is not current guidance; it is indexed here as historical research only.
This opinion also issued in 2000, before Ohio's adoption of the Ohio Rules of Professional Conduct (effective February 1, 2007). The DR 3-103, DR 5-101, DR 5-104, and DR 5-107 provisions discussed here have been replaced by Ohio Prof. Cond. R. 5.4, 1.7, and 1.8. Treat this page as historical context, not current guidance. Verify against current rules and Opinion 2019-10 before relying on anything here.
Plain-English summary
The Board addressed a proposal in which a financial services group would pay a lawyer a negotiated fee for each client the lawyer referred for financial services, with the group meeting the client at the lawyer's office, the lawyer present at the initial meeting and approving the plan or product before it was offered. The Board confined itself to the ethics question and declined to address whether such a referral fee is lawful. It identified two concerns: improper business relationships with clients and non-lawyers, and interference with the lawyer's professional judgment.
On the first concern, the Board read DR 3-103(A) (no partnership with a non-lawyer where any activity is the practice of law) as reaching business relationships and associations, not just formal partnerships, citing Opinions 92-15 and 97-1. Because making appropriate referrals during representation is part of the practice of law and a fiduciary duty owed in the client's best interest, the Board concluded the proposed ongoing relationship involved activities that consist of the practice of law and violated DR 3-103(A). It also found the arrangement a business transaction with a client under DR 5-104(A) involving differing interests, describing the lawyer, client, and financial group as a "triumvirate."
On the second concern, the Board concluded that a referral fee is a financial interest that may affect the lawyer's professional judgment under DR 5-101(A)(1), and that DR 5-107(A)(1) and (2) restrict accepting compensation or anything of value from someone other than the client related to the representation. Surveying other states (some treating disclosure and consent as curative, others not), the Board agreed with the stricter view that disclosure and consent do not cure the conflict. It reasoned that because DR 3-103(A) provides no disclosure-and-consent exception while the other rules do, the joint application of these rules means the consent exception does not apply. The Board cited Cincinnati Bar Ass'n v. Bertsche, 84 Ohio St. 3d 170 (1998), where an attorney who received fees from a company for referring bankruptcy clients was found to be in a conflict-of-interest situation.
Common questions
Q: Could an Ohio lawyer accept a fee from a financial company for referring clients to it?
A: No. The opinion concluded it is ethically improper for a lawyer to accept a fee from a financial services group for referring clients in need of financial services.
Q: Could client consent after full disclosure make the arrangement permissible?
A: No. The opinion concluded that disclosure and consent do not cure the conflict, because DR 3-103(A) (unlike the other rules involved) has no consent exception.
Q: Why was making the referral itself treated as the practice of law?
A: The opinion reasoned that clients expect appropriate referrals during representation and that the lawyer has a fiduciary duty to make them in the client's best interest, so the referral is part of the practice of law.
Q: Did the Board decide whether such a referral fee is legal?
A: No. The opinion expressly declined to address whether a referral fee from a financial or investment advisor is unlawful, as that was beyond the Board's authority.
Background and rules framework
The opinion interprets former Ohio Code of Professional Responsibility DR 3-103(A) (partnerships with non-lawyers), DR 5-101(A)(1) (financial interests affecting judgment), DR 5-104(A) (business transactions with clients), and DR 5-107(A)(1) and (2) (compensation from persons other than the client), provisions now addressed by Ohio Prof. Cond. R. 5.4, 1.7, and 1.8 (Model Rules 5.4, 1.7, and 1.8).
Citations and references
Rules of Professional Conduct:
- Former Ohio Code of Professional Responsibility DR 3-103(A), DR 5-101(A)(1), DR 5-104(A), DR 5-107(A)(1), (2)
Cases:
- Cincinnati Bar Ass'n v. Bertsche, 84 Ohio St. 3d 170 (1998), conflict of interest in referral fees from a financing company
Other opinions cited:
- Ohio Bd. of Comm'rs on Grievances & Discipline Ops. 92-15 (1992), 97-1 (1997)
- Connecticut Bar Ass'n Informal Op. 97-16; Missouri Chief Disciplinary Counsel Op. 960124; Rhode Island Ethics Advisory Panel Op. 99-08 (disclosure-and-consent view)
- Kentucky Bar Ass'n Op. E-390 (1996); Maryland State Bar Ass'n Op. 96-17 (1995); New York State Bar Ass'n Op. 682 (1996); Vermont Bar Ass'n Op. 98-8 (contrary view)
See also
- Ohio BPC Op. 1999-006: Referral to a Litigation-Funding Company
- Ohio BPC Op. 1995-006: Paying a Nonprofit Referral Organization a Percentage of the Fee
- Ohio BPC Op. 1991-007: For-Profit Lawyer Referral Service and Joint Advertising
Source
- Landing page: https://ohioadvop.org/advisory-opinion-index/
- Original PDF: https://www.ohioadvop.org/wp-content/uploads/2017/04/Op-00-001.pdf
Original opinion text
Reproduced from the official source for research purposes. The linked source is authoritative.
The Supreme Court of Ohio
BOARD OF COMMISSIONERS ON GRIEVANCES AND DISCIPLINE
41 SOUTH HIGH STREET-SUITE 3370, COLUMBUS, OH 43215-6105
(614) 644-5800 FAX: (614) 644-5804
OFFICE OF SECRETARY
OPINION 2000-1
Issued February 11, 2000
Withdrawn by Adv. Op. 2019-10
[CPR Opinion-provides advice under the Ohio Code of Professional Responsibility which is superseded
by the Ohio Rules of Professional Conduct, eff. 2/1/2007.]
SYLLABUS: It is ethically improper for a lawyer to accept a fee from a financial
services group for referring clients in need of financial services. The referral fee
agreement involves an improper business relationship with clients and non-lawyers under
DR 3-103(A) and DR 5-104(A). The referral fee agreement creates a financial interest
that will affect or reasonably may affect the professional judgment of a lawyer under DR
5-101(A)(1) and DR 5-107(A)(1) and (2). Full disclosure and consent do not resolve the
conflict. While DR 5-101(A)(1), DR 5-104(A), and DR 5-107(A)(1) and (2) provide a
full disclosure and consent exception, DR 3-103(A) does not. Because of the joint
application of these rules, the full disclosure and consent exception does not apply.
OPINION: This opinion addresses whether it is ethically proper for a lawyer to accept a
referral fee from a financial services group.
Is it ethically proper for a lawyer to accept a fee from a financial services
group for referring clients in need of financial services?
Ohio lawyers are being asked to enter into a business arrangement with a financial
services group. The group offers financial services through its investment planners,
investment advisors, and money managers. The group offers insurance services through
independent insurance specialists and offers accounting services through several local
accounting firms. The group proposes paying lawyers a fee for referring clients in need
of financial services. Upon referral, the financial services group meets with the client at
the lawyer’s office. The lawyer is to be present at the initial meeting. The lawyer
approves the plan or product before it is offered to the client. The lawyer receives a fee
for each client referred. The financial services group and the lawyer negotiate the fee in
advance of the referral.
The opinion addresses whether the proposed activity is ethical. The opinion does not
address whether a referral fee from a financial/investment advisor is unlawful for that is
beyond the advisory authority of the Board of Commissioners on Grievances and
Discipline.
Several rules within the Ohio Code of Professional Responsibility are applicable to the
question raised, DR 3-103(A), DR 5-101(A)(1), DR 5-104(A), and DR 5-107(A)(1) and
(2). These rules govern two ethical concerns relevant to this opinion: (1) Improper
Op. 2000-1 2
business relationships with clients and other non-lawyers and (2) Interference with the
professional judgment of a lawyer.
Improper business relationships with clients and other non-lawyers
DR 3-103(A) A lawyer shall not form a partnership with a non-lawyer if
any of the activities of the partnership consist of the practice of law.
DR 5-104(A) A lawyer shall not enter into a business transaction with a
client if they have differing interests therein and if the client expects the
lawyer to exercise his [her] professional judgment therein for the
protection of the client, unless the client has consented after full
disclosure.
DR 3-103(A) prohibits the formation of partnerships between lawyers and non-lawyers
when any of the activities include the practice of law. DR 3-103(A) has been construed
as applying to the formation of business relationships and associations, not just true
partnerships formed under state law. See, Ohio Sup Ct, Bd Comm’rs on Griev & Disc,
Op. 92-15 (1992) advising that a law firm retained by a business corporation to perform
services related to the corporation’s marketing of wills, durable powers of attorney, and
living wills gives the appearance of a business relationship, possibly running afoul of DR
3-103(A); and Ohio Sup Ct, Bd Comm’rs on Griev & Disc, Op. 97-1 (1997) advising that
“[a] lawyer who enters a franchise agreement with a non-lawyer would be involved in a
business relationship with a non-lawyer where the activities consist of the practice of law
in violation of DR 3-103(A).”
The financial services group, while not asking lawyers to form partnerships as defined
under state law, is asking for ongoing business associations or relationships with the law
firms. As explained below, the proposed business relationships involve activities that
consist of the practice of law and therefore violate DR 3-103.
Clients expect lawyers to make appropriate referrals to other individuals or groups when
the need becomes apparent during the legal representation. If during the legal
representation, a lawyer ascertains that a client needs financial services, the lawyer has a
fiduciary duty to refer a client to appropriate resources. These referrals are part of the
attorney’s practice of law. The lawyer’s duty of loyalty demands that the referral be
made in the client’s best interest, free of compromise and conflict. A lawyer should not
make these referral decisions based upon financial incentives that a particular company
may offer the lawyer.
DR 5-104 prohibits a lawyer from entering a business relationship with a client when
there are differing interests therein. For the reasons stated below, the proposed business
relationship involves the lawyer in a business relationship with the client and with the
financial services group in which there are differing (and/or the potential for differing)
interests that would violate DR 5-104(A) in the absence of informed client consent.
The lawyer appears to be entering a business relationship with only the financial services
group and not with the client, but upon closer examination, the business relationship is a
Op. 2000-1 3
triumvirate. The financial services group receives clients and earns money from the sale
of its plans and products. The client receives plans and products from the financial
services group and receives legal advice about the plans and products from the attorney.
The attorney refers the client, provides office space for the meetings between the
financial group and the client, attends the initial meeting, and approves the financial plans
and products being offered. The attorney and the financial group might negotiate the
referral fee in a variety of ways and as a consequence the interests would vary. For
example, the fee might be negotiated as a one-time fee per referral. The fee might be
negotiated as a one-time fee based upon how much of the product the client buys. Or, the
fee might be negotiated as an ongoing fee throughout the life of the product, such as a
negotiated portion of the asset management fee. Regardless, of how the fee is negotiated,
there exists a business relationship among the lawyer, client, and the financial services
group.
Interference with the professional judgment of a lawyer
DR 5-101(A)(1) Except with the consent of the client after full disclosure,
a lawyer shall not accept employment if the exercise of professional
judgment on behalf of the client will be or reasonably may be affected by
the lawyer’s financial, business, property, or personal interests.
DR 5-107(A) Except with the consent of his [her] client after full
disclosure, a lawyer shall not:
(1) Accept compensation for his [her] legal services from
one other than his [her] client.
(2) Accept from one other than his [her] client any thing of
value related to his [her] representation of or his [her]
employment by his [her] client.
DR 5-101(A)(1) prohibits a lawyer’s acceptance of employment when the lawyer has
financial, business, property, or personal interests that will affect or reasonably may
affect the exercise of a lawyer’s professional judgment on behalf of the client. By logical
extension, the rule also prohibits a lawyer’s continued employment when there are such
interests. A referral fee is a financial interest that will or reasonably may affect a
lawyer’s professional judgment under DR 5-101(A). The more referrals, the more money
made.
DR 5-107(A)(1) prohibits a lawyer from accepting compensation for legal services from
one other than the client. As already stated, making an appropriate referral of represented
clients in need of financial services is a legal service expected of a lawyer in fulfilling his
or her fiduciary duties to a client. A referral fee paid by a financial services group to a
lawyer falls within the ambit of this rule because the fee indirectly provides
compensation to a lawyer for expected legal services.
DR 5-107(A)(2) prohibits a lawyer from accepting any thing of value related to his or her
representation or employment of the client. A fee paid by a financial services group to a
lawyer for referring a client to the group is a thing of value related to a lawyer’s
representation or employment of the client and is restricted by this rule.
Op. 2000-1 4
These rules provide that consent of a client after full disclosure obviates the restrictions
of the rules. Nevertheless, whether a referral fee paid to a lawyer is appropriate upon
client consent is subject to interpretation and is an area of disagreement among ethics
committees interpreting the rules of professional conduct.
One view is that disclosure and consent cure such conflict.
Connecticut Bar Ass’n, Informal Op. 97-16 (1997). An attorney may
accept a referral fee from a network of associated investment advisor
representatives if the referring attorneys abide by certain requirements
including disclosure and consent.
Missouri SupCt, Chief Disciplinary Counsel, Op. 960124 (undated).
An attorney’s participation in a program involving payment of an ongoing
fee to an attorney by an investment advisor and securities broker-dealer
for referring a client who opens an account will violate Rule 4-1.7(b),
unless the attorney fully discloses the relationship and the potential for the
attorney to receive a financial benefit as a result of the referral.
Rhode Island SupCt, Ethics Advisory Panel, Op. 99-08 (1999). A
lawyer may accept a referral fee from a business associate for referring a
client in need of investment services, if permitted by the rules and law
governing the other business, but pursuant to Rule 1.8(a) must disclose
that fact to the client.
Another view is that disclosure and consent do not cure the conflict.
Kentucky Bar Ass’n, Op. E-390 (1996). A lawyer may not receive
compensation structured as a percentage share of a recurring account
management fee for the lawyer’s referral of a client to an investment
advisor, even after disclosure to and consent by the client.
Maryland State Bar Ass’n, Op. 96-17 (1995). A lawyer may not
ethically participate in a proposed business arrangement with a financial
planning organization pursuant to which the lawyer, following settlement,
having previously entered the relationship with the organization, refers a
client for financial planning services and receives a commission if the
client purchases any financial service. The committee noted in footnote 2
of the opinion that “even with full disclosure to the client, this Committee
most probably would not condone the marketing arrangement.”
New York State Bar Ass’n, Op. 682 (1996). An attorney may not accept
a referral fee from an investment advisor. Disclosure and consent would
not cure the conflict.
Vermont Bar Ass’n Op. 98-8 (undated). A lawyer may not accept a
referral fee from an investment advisory service even with prior disclosure
and consent by the client.
Op. 2000-1 5
This Board agrees that clients expect appropriate referrals by their lawyers during the
course of representation and that such referrals should be made free of financial incentive
to the lawyers. See, e.g., Vermont Bar Ass’n, Op. 98-8 (undated) advising that “[c]lients
view recommendations to other professionals as part of their representation by their
lawyers and expect their lawyers to act independently of any underlying financial interest
in such referral; New York State Bar Ass’n Op. 682 (1996) advising that “disclosure and
consent would not cure the direct and substantial conflict between the client’s and
lawyer’s interests inherent in accepting a referral fee from the investment advisor, even
where the client is offered the choice to claim the referral fee and the attorney purports to
exercise independent judgment in framing his or her initial recommendation to consult an
investment advisor. Clients view recommendations of other professionals as part of their
representation by their lawyers, and expect that lawyers will act as trusted fiduciaries in
such matters.”
This board also agrees that full disclosure and consent do not resolve the conflict. Under
the Ohio Code of Professional Responsibility, DR 5-101(A)(1), DR 5-104(A), and DR 5-
107(A)(1) and (2) provide a full disclosure and consent exception, but DR 3-103(A) does
not. Because of the joint application of these rules to the issue raised, the full disclosure
and consent exception does not apply.
In Cincinnati Bar Ass’n v. Bertsche, 84 Ohio St. 3d 170, 174 (1998), the Supreme Court
of Ohio imposed an indefinite suspension on an attorney who, along with committing
other misconduct, assisted bankruptcy clients in obtaining loans from a company to pay
off their Chapter 13 balances and received $1200 to $1900 in fees from the company on
each loan. According to the court,
[r]espondent neither advised his clients in advance of his fees for loan
refinancing nor filed the required applications to inform the court of those
fees. As a consequence, respondent set his fee unilaterally with no input
from his clients or the court. Thus, if respondent represented his clients in
the loan transactions, he failed to adhere to our Ethical Considerations and
failed to comply with the federal bankruptcy rules.
The record indicates that at least two of respondent’s clients believed that
the $1500 added to their loans was a fee that Associates [the company]
paid to respondent for referring the clients to it. If such was the case,
respondent was in a conflict-of-interest situation. In either this situation or
the unilateral-fee-setting situation, respondent was in violation of our
disciplinary standards.
Id. at 173-74.
In conclusion, this Board advises that it is ethically improper for a lawyer to accept a fee
from a financial services group for referring clients in need of financial services. The
referral fee agreement involves an improper business relationship with clients and non-
lawyers under DR 3-103(A) and DR 5-104(A). The referral fee agreement creates a
financial interest that will affect or reasonably may affect the professional judgment of a
lawyer under DR 5-101(A)(1) and DR 5-107(A)(1) and (2). Full disclosure and consent
do not resolve the conflict. While DR 5-101(A)(1), DR 5-104(A), and DR 5-107(A)(1)
Op. 2000-1 6
and (2) provide a full disclosure and consent exception, DR 3-103(A) does not. Because
of the joint application of these rules, the full disclosure and consent exception does not
apply.
Advisory Opinions of the Board of Commissioners on Grievances and Discipline are
informal, nonbinding opinions in response to prospective or hypothetical questions
regarding the application of the Supreme Court Rules for the Government of the
Bar of Ohio, the Supreme Court Rules for the Government of the Judiciary, the
Code of Professional Responsibility, the Code of Judicial Conduct, and the
Attorney’s Oath of Office.
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