Opinion 2055

The inquiring lawyer wishes to know whether it is violation of the Rules of Professional Conduct for a law firm practicing primarily in the areas of estate and tax planning to establish a separate business entity for the purposes of offering investment advisor services and investment products such as annuities, mutual funds and other securities. It is anticipated that clients of the to-be-formed business would also be clients of the law practice. The lawyers of the law firm would realize income from the separate business in the form of fees and commissions from the investment products sold.

In Washington, RPC 1.5, 1.6, 1.7, 1.8, 1.14, 7.1, 7.2 and 7.3 would appear to apply most directly to the above situation. RPC 1.7 provides the general rule as to a conflict of interest between an attorney and her or his client. RPC 1.8 provides more specific rules as to conflicts of interest and prohibited transactions with a current client, especially business transactions. RPC 1.5 provides for reasonable attorney fees and fee disclosure requirements. RPC 1.6 provides for the preservation and use of a client’s secrets and confidences. RPC 1.14 provides for the preserving the identity of funds and the property of a client. RPC 7.1 provides that a lawyer shall not make a false or misleading communication about the lawyer or the lawyer’s services. RPC 7.2 provides in part that a lawyer shall not give anything of value to a person for recommending the lawyer’s services, except the cost of advertising or communicating. RPC 7.3 provides that a lawyer must have direct contact with prospective clients and cannot for business purposes directly or through a third person solicit a prospective client with whom the lawyer has no family or prior professional relationship.

The above business transaction would likely be prohibited unless the lawyer fully complies with the procedures and requirements enumerated in RPC 1.5, 1.6, 1.7, 1.8(a), (b), (c), (d), (e), and (f), 1.14, 7.1, 7.2, and 7.3.

Generally speaking, the lawyer’s interests in obtaining fees or commissions from the sale of the products give the lawyer a financial incentive to sell more products to the client. Additionally, the separate business entity must in fact be separate both physically and financially. A lawyer cannot represent to the customers of the separate business that the customers will receive the benefits of the lawyer’s expertise or otherwise provide the customers with false expectations regarding the services provided by the separate business. A lawyer must make clear to the customers of the separate business that there is no attorney/client privilege between such customers and the lawyer. Lastly, the separate business cannot be used as a means of obtaining referrals for the law office and, likewise, the law office cannot be used to refer clients to the separate business.

The burden is on the lawyer to fully comply with the foregoing and it appears to the committee that under the facts presented that the burden here is substantial. It is the committee’s opinion that inquirer could not reasonably believe that the representation will not be materially limited by the lawyer’s own interests, as an investment advisor or seller of investment products. Further, under the facts of this case, the business appears so inextricably intertwined as to be indistinguishable and therefore would be prohibited.

The RPC Committee cannot offer legal advice as to sufficiency of the contents of any such disclosure or consent required in the rules above. Nor can the RPC Committee comment on whether an attorney, even while acting as a broker, would nevertheless be held to the standard of care of an attorney, as that would also constitute legal advice.