Seeking a referral fee from a financial adviser is unwise.
May I accept a referral fee from a financial adviser if he receives a full client disclosure statement executed by my client?
The answer appears to be no, a lawyer cannot get a referral fee from referring a case to a financial adviser, even if the client consents with full and complete disclosure.
Referral fees are allowed between attorneys pursuant to Pennsylvania Rule of Professional Conduct 1.5(e). That rule allows for an attorney to divide a fee with another attorney without a quantum meruit basis. But that rule does not allow sharing fees with nonlawyers. In fact, there is a specific prohibition against sharing fees with nonlawyers, which is found in Rule 5.4(a). That rule has a specific prohibition about sharing fees with nonlawyers, with a few minor exceptions that are not applicable to the question. Comment 1 to Rule 5.4 notes:
"The provisions of this rule express traditional limitations on sharing fees. These limitations are to protect a lawyer’s professional independence of judgment."
Having said that, there is an excellent summary in the Pennsylvania Ethics Handbook, published by the Pennsylvania Bar Association’s legal ethics committee and edited by attorneys Michael Temin and Thomas Wilkinson Jr., which references PBA Opinion 2003-107, where an attorney who was also an executor cannot receive a referral fee on a medical malpractice case arising out of the death of the decedent. In fact, the committee notes the PBA’s Informal Opinion 2003-65, where a referring lawyer wished to give his share of his referral fee to the mother of the injured minor child. The committee held that would be an illegal splitting of fees with a nonlawyer. The committee notes as follows:
"Ironically, the relevant rules are less strict when the situation is reversed, that is, when a service provider, such as an insurance agent, investment manager, title company, etc., pays a referral fee to the lawyer. In Joint Formal Opinion 2000-100, the Pennsylvania and Philadelphia committees saw no prohibition to such an arrangement, as long as the lawyer maintained independent judgment in choosing the provider and the client consents after careful consideration per Rules 1.7(b) and 1.8(f)."
The committee then references the PBA’s Informal Opinion 2007-019. In that case, a financial adviser wanted to give one-third of his fee to the lawyer who was referring the client to the financial adviser for financial services. The opinion noted the need for a rather detailed informed consent and also noted "that the lawyer maintain independent judgment when evaluating the pros and cons of making the referral."
Therefore, despite the general prohibition of fee sharing in Rule 5.4, there does appear to be a suggestion in the two aforementioned bar association’s formal opinions, 2000-100 and 2007-019, that a financial adviser or accountant can pay some sort of referral fee back to the lawyer as long as there is full and detailed disclosure to the client. These opinions seem to fly in the face of the direct prohibition under Rule 5.4, but these are opinions by a respected legal ethics committee.
A major concern is the choosing of the financial adviser. That can create a conflict of interest under Rule 1.7, because it might be in the lawyer’s interest to use a certain financial adviser who is going to pay a nice referral fee, as opposed to someone who perhaps is more competent who won’t pay any kind of referral fee.
In other words, when the lawyer sends the client for advice to an accountant or a financial adviser or some service provider, the lawyer may be looking out for the lawyer’s pocketbook as opposed to who is the best qualified person to give such advice to the client. If that is the case, then the lawyer has a conflict of interest under Rule 1.7.
But anyone who is sending cases to other service providers and wants to get a fee in return should carefully read those two aforementioned opinions. Despite those opinions, it would appear not to be a good practice. Although every lawyer wants to make money in these very difficult economic times, the prohibition against sharing fees with a nonlawyer is a good one and is based on the goal of maintaining the independence of a lawyer and preventing someone paying for cases. Those rationales still should, in the mind of this writer, preclude this practice. But the PBA and Philadelphia Guidance Committee opinion seems to suggest to the contrary.
A lawyer can make his or her practice areas clear to potential clients.
What can I tell clients about my practice areas in advertisements and/or on letterhead?
A lawyer certainly has the right to describe the areas in which the lawyer practices. This is permitted by the rules of advertising beginning with Rules 7.1, 7.2, 7.3 and 7.4 of the Rules of Professional Conduct. Rule 7.4(a) specifically states the following:
"A lawyer may communicate the fact that the lawyer does or does not practice in particular fields of law."
Therefore, a lawyer can say he or she practices criminal law or civil law or trial law or appellate law or transactional law, etc. A lawyer can even say he or she limits his or her practice to a particular area of law.
But it is important for every lawyer to note when the lawyer says he or she limits his or her practice or practice in a certain area, the lawyer cannot state he or she is a specialist in that area. Rule 7.4(a) specifically precludes the suggestion a lawyer is a specialist in a particular area unless there is certification by organizations approved by the Pennsylvania Supreme Court upon the recommendation of the Pennsylvania Bar Association.
This is a difficult rule, particularly for an attorney who practices in one or two areas of law, has done so for many years and is recognized as one of the better lawyers in that area of the law. The lawyer can certainly note he or she emphasizes a certain legal area or has tried many cases in that particular area, but cannot use the term "specialist."
There are some exceptions to that, such as admiralty and patent and trademark work. Pennsylvania has approved several organizations for certification purposes. Every lawyer has seen a lawyer who is certified either as a civil or criminal trial lawyer. But to get that certification, the lawyer has had to try so many cases and then go through an examination and perhaps coursework through the certifying organization. Only when that designation through the certified organization is approved can a lawyer advertise him or herself as a specialist in a particular area.
For many lawyers, that is just too much bureaucracy. A good lawyer wants to practice law and not spend life taking tests and getting further certified. But lawyers must remember that they cannot suggest they are specialists even though they may be able to run rings around the certified lawyer who now can hold him or herself out as a specialist.
The reason for this prohibition is that the Pennsylvania Supreme Court does not want the public to be misled. A lawyer may think he or she is a specialist in a particular area, but perhaps that’s not the truth. Even lawyers who try regularly in a particular area sometimes aren’t that good in that particular area. It is like everything else: Some people learn and get better and some people just keep making the same mistakes as they go along. The certification process provides some objectivity so the public won’t be misled and so there are no unjustifiable expectations. As professionals, lawyers have to comply with that requirement and not use the word "specialized" and instead use words that just suggest longevity, such as "emphasize" or "practiced for a number of years in this particular area," etc.
But with that limitation, lawyers can certainly point out in advertisements or on letterhead what areas of the law they practice in and also, if they wish, what areas they don’t practice in. •
Chester County lawyer Samuel C. Stretton has practiced in the area of legal and judicial ethics for more than 35 years. He welcomes questions and comments from readers. If you have a question, call Stretton directly at 610-696-4243 or write to him at 301 S. High St. P.O. Box 3231, West Chester, Pa. 19381.