Maryland State Bar Association

Committee on Ethics

Ethics Docket 2017-03

You have requested an opinion concerning whether a lawyer may operate a tax practice in a law firm as well as a separate and distinct business as a certified financial planner (CFP).

Rule 5.7 applies to lawyers who engage in law related businesses whether singly or in addition to their law practice.  Accordingly, that Rule needs to be analyzed in conjunction with the facts you have provided. In doing so, the Committee reaches the conclusion that under the facts you have described and the conditions described by the Committee you can operate a tax practice in a law firm and participate as an employee of a separate and distinct financial planning business that you do not control.

Background

You are a certified public accountant (CPA) and an attorney who currently operates a law firm and represents clients with matters that principally relate to tax issues.  You also hold a Series 65 license and are a registered investment adviser with FINRA (Financial Industry Regulatory Authority). You want to become a licensed CFP and join a financial planning company as an investment advisor, while continuing to practice with the law firm.  You emphasize that the financial planning company would remain separate and distinct from the law firm, with a separate office, separate staff, separate letterhead, and separate business cards, and that you will not own any interest in the financial planning company or control its operations.  

The financial planning company anticipates providing services to individuals who are clients of your law firm, have been clients of the law firm, or may become clients of the law firm as well as its normal clientele.  In fact, you indicated an intent to refer clients from each business to the other—if a financial planning client asks for a lawyer for legal services, you will inform the person that you have a law practice that they can use; similarly, if a law firm client seeks financial planning services, you will explain that you are a certified financial planner and can provide those services through the financial planning company.  Clients who use both services will be given written notice of your “role and interest” in each entity. The fees received from the financial planning company will not be tied to any particular investment, but will derive from a percentage of the amount of funds invested by the client.

The Committee has not interpreted Rule 5.7 and in doing so for the first time, notes that it is confusing, but when carefully parsed leads us to what we believe offers you some clear direction.   To understand the Rule one must read it and its Comments carefully. The Rule itself provides:

(a) An attorney shall be subject to the Maryland Attorneys’ Rules of Professional Conduct with respect to the provision of law-related services, as defined in section (b) of this Rule, if the law-related services are provided:

(1) by the attorney in circumstances that are not distinct from the attorney’s provision of legal services to clients; or

(2) in other circumstances by an entity controlled by the attorney individually or with others if the attorney fails to take reasonable measures to assure that a person obtaining the law-related services knows that the services are not legal services and that the protections of the client-attorney relationship do not exist.

(b) The term “law-related services” denotes services that might reasonably be performed in conjunction with and in substance are related to the provision of legal services, and that are not prohibited as unauthorized practice of law when provided by a non-attorney

At the outset, Rule 5.7 describes when the Rules of Professional Conduct apply to the second business:  When the business is a law related business and the law related services are provided by an attorney under circumstances that are not distinct from the law practice or if the law related services are provided by an entity over which the lawyer has control if the lawyer does not take reasonable measures as proscribed in subsection (a)(2).  For even when Rule 5.7 leads to the conclusion that the Rules do not apply to the second business, as is made clear in the Comments, the Rules continue to apply to the lawyer while practicing law and with respect to the Rules generally apply to attorney conduct. (See: Rule 5.7 Comment 11). See also the Preamble No. 3 wherein the following admonition appears:  “In addition, there are Rules that apply to attorneys who are not active in the practice of law or to practicing attorneys even when they are acting in a nonprofessional capacity. For example, an attorney who commits fraud in the conduct of a business is subject to discipline for engaging in conduct involving dishonesty, fraud, deceit or misrepresentation. See Rule 19-308.4 (8.4).”

By its terms, Rule 5.7 tells us that the Rules of Professional Conduct do not apply to a lawyer while engaged in providing non-law related services and while engaged in providing law related services in circumstances that are distinct from the attorney’s provision of legal services to clients.  Left for lawyers to analyze are the “circumstances” the Court of Appeals meant and would find to be “distinct from the attorney’s provision of legal services to clients.” While decided under the previous rules, the Committee believes the Court of Appeals would rely on its decision in Attorney Grievance Commission (AGC) v. Martin, 308 Md. 272 (1987) when interpreting the circumstances that define what is distinct from those that are not distinct when a lawyer provides law related services in addition to practicing law. The key issue in that case involved the understanding of the client—if the law practice and ancillary business are not sufficiently separate, the client may reasonably believe that the client is dealing with an attorney, along with all the protections that accompany that relationship.  To ensure a clear distinction, the Court identified the minimum elements for establishing a business separate from a law practice, which included “a separate building, with no common use of stationery, cards, announcements, names on doors, windows or shingles, telephone numbers, etc.” 308 Md. at 282. The Court did not end its analysis there, but went on to adopt the concern expressed by the American Bar Association and the Maryland State Bar Association:

[An attorney that has] a law-related second-profession [sic] must be always cognizant of the capacity in which he is representing a client . . . [and] of the fact that no matter in which capacity he is at any moment acting, he is always subject to the guidelines and standards of the Code of Professional Responsibility, and that these guidelines and standards impose strictures upon him or her that may not be applicable to other practitioners of the second-profession [sic].

308 Md. at 283.

Adoption of Rule 5.7 intended a change, but the Committee believes the Court would continue to hold to what it described in Martin when analyzing the “circumstances” that make a law related service distinct from the lawyers legal practice.  This conclusion is supported by Comment 1, which recognizes that “when a lawyer provides law-related services or controls an organization that does so, there exists the potential for ethical problems.” Rule 5.7, Comment 1.  The Comment then highlights the essence of the ethical problems that may arise:

Principal among these is the possibility that the person for whom the law-related services are performed fails to understand that the services may not carry with them the protections normally afforded as part of the client-attorney relationship. The recipient of the law-related services may expect, for example, that the protection of client confidences, prohibitions against representation of persons with conflicting interests, and obligations of an attorney to maintain professional independence apply to the provision of law-related services when that may not be the case.

The Comment support the conclusion that an attorney who is directly providing the law-related services should make sure that the client understands that the services are distinct from – and not – legal services and that the protections of the attorney-client relationship may not apply.  The next Comments shows that this requirement applies even if the attorney is only providing that law-related services to the person and does not provide any legal services. Comment 2 specifies that “Rule 19-305.7 (5.7) applies to the provision of law-related services by an attorney even when the attorney does not provide any legal services to the person for whom the law-related services are performed and whether the law-related services are performed through a law firm or a separate entity.”

The combined effect of the Rule and the Comments leads this Committee to the conclusion that Rule 5.7(a)(1) applies when the lawyer is providing the law-related services and Rule 5.7(a)(2) extends that application even when the lawyer is not personally providing the law-related services, but controls (either individually or with others) an entity that is providing law-related services. Thus, if an attorney controls an entity that is providing law-related services, under Rule 5.7(a)(2), that attorney must take reasonable measures to assure that “each person using the services of the entity knows that the services provided by the entity are not legal services and that the Maryland Attorneys’ Rules of Professional Conduct that relate to the attorney-client relationship do not apply.”  Rule 5.7, Comment 4 (emphasis added). You have indicated that you will not own or control the financial services company, so Rule 5.7(a)(2) does not require that you take these measures with regard to all the persons receiving law-related services from the financial planning company.  It bears repeating, however, that even when the Rules do not apply to the lawyer while providing the secondary services, they apply to the law practice and those Rules that apply generally to lawyer conduct continue to apply to the lawyer’s conduct.

Under Rule 5.7, the Rules apply regardless of whether the law related business is operated in circumstances distinct from a lawyer’s law practice when a lawyer controls the business offering law related services unless the lawyer ensures that each person obtaining the law-related services knows that the services are not legal services and that the protections of the client-attorney relationship do not exist.  By implication, if the business is not controlled by a lawyer and a lawyer is an employee of the business and the law-related services are provided under circumstances distinct from the lawyer’s practice of law, then the Rules do not apply to that business.

The definition of “law related services” creates its own minefield for lawyers engaged in law related businesses.  The Committee believes that where the Rule exempts from the definition services that constitute the unauthorized practice of law, the Court did not intend to allow those services.  Instead it intended to mean that a business offering services that constitute the “practice of law” and are performed by non-lawyers in a secondary business with whom the lawyer associates causes the lawyer to violate the Rules and makes the lawyer subject to discipline.  Needless to say, there are a host of ongoing issues that exist between lawyers and other professionals as to whether their activities constitute the practice of law; for example, whether some functions performed by CPA’s constitute the practice of law.

The Comments to the Rules also offer guidance to the lawyer both under circumstances where the Rules apply and where they do not.  The Comments direct that the attorney comply with Rule 7.2 when referring clients to an ancillary business and clearly applies to the lawyer who refers legal clients to a business with which the lawyer has some connection as well as otherwise. Specifically Comment 12 provides that referrals made by a lawyer to a non-attorney professionals must comply with Rule 7.2.  Comment 5 discusses other considerations in making referrals and cross referrals:

[5] An attorney is not required to comply with Rule 19-301.8 (a) (1.8) when referring a person to a separate law-related entity owned or controlled by the attorney for the purpose of providing services to the person. If the attorney also is providing legal services to the person, the attorney must exercise independent professional judgment in making the referral. See Rule 19-302.1 (2.1). Moreover, the attorney must explain the matter to the person to the extent necessary for the person to make an informed decision to accept the attorney’s recommendation. See Rule 19-301.4 (b) (1.4).

Comment 10 speaks directly to the rules that come into play when the Rules apply to the secondary business:

[10] When an attorney is obliged to accord the recipients of such services the protections of those Rules that apply to the client-attorney relationship, the attorney must take special care to heed the proscriptions of the Rules addressing conflict of interest (Rules 19-301.7 (1.7) through 19-301.11 (1.11), especially Rules 19-301.7 (a)(2) (1.7) and 19-301.8 (b) and (f) (1.8), and to scrupulously adhere to the requirements of Rule 19-301.6 (1.6) relating to disclosure of confidential information. The promotion of the law-related services must also in all respects comply with Rules 19-307.1 (7.1) through 19-307.3 (7.3), dealing with advertising and solicitation. In that regard, attorneys should take special care to identify the obligations that may be imposed as a result of a jurisdiction’s decisional law.

As noted previously, when the Rules do not fully apply to the secondary business, the lawyer cannot ignore other law that may come into play as described in Comment 11:

[11] When the full protections of all of the Maryland Attorneys’ Rules of Professional Conduct do not apply to the provision of law-related services, principles of law external to the Rules, for example, the law of principal and agent, govern the legal duties owed to those receiving the services. Those other legal principles may establish a different degree of protection for the recipient with respect to confidentiality of information, conflicts of interest and permissible business relationships with clients. See also Rule 19-308.4 (8.4) (Misconduct).

The Comments also point out that where you intend to provide both legal and law-related services to the same people, you must insure that recipients of the services fully understand the distinctions between where the client-attorney relationship begins and ends.

[8] Regardless of the sophistication of potential recipients of law-related services, an attorney should take special care to keep separate the provision of law-related and legal services in order to minimize the risk that the recipient will assume that the law-related services are legal services. The risk of such confusion is especially acute when the attorney renders both types of services with respect to the same matter. Under some circumstances the legal and law-related services may be so closely entwined that they cannot be distinguished from each other, and the requirement of disclosure and consultation imposed by subsection (a)(2) of this Rule of the Rule cannot be met. In such a case an attorney will be responsible for assuring that both the attorney’s conduct and, to the extent required by Rule 19-305.3 (5.3), that of non-attorney employees in the distinct entity that the attorney complies in all respects with the Maryland Attorneys’ Rules of Professional Conduct.

Reference in Comment 8 to complying with subsection (a)(2) confuses the Comment’s meaning as (a)(2) is stated to apply under circumstances where a lawyer controls a secondary business offering law related services.  Nevertheless, the Committee believes that a lawyer must ensure that a person dealing with the lawyer under any circumstance related to this Rule must be informed of how the relationship differs from the client-attorney relationship so that the person fully understands the lawyer’s role either as a lawyer or as a person performing services that are not the practice of law.  This conclusion conforms to the requirement attorneys must meet when giving non-legal advice to clients; i.e., they must explain that the advice may not be protected by the client-attorney privilege.

Conclusion

The Committee believes that the proposed ancillary business may be permissible if the law practice and the financial planning services operate under circumstances that are distinct and adequately distinguished.  To do so requires both the physical separation of the two businesses and the implementation of steps that ensure the clients’ understanding of the distinction between the two businesses, i.e., when the attorney-client protections apply and when they do not.  If the provision of law-related services cannot be adequately distinct from the law practice, the Rules of Professional Conduct apply when you are providing those law-related services.

You must evaluate whether your dual services are “so closely related that they cannot be distinguished from each other” such that “the requirement of disclosure and consultation imposed by paragraph (a)(2) of this Rule . . . cannot be met.”  Rule 5.7, Comment 8. While the dual practice you propose is permitted by the Rules, you will need to evaluate your practice in relation to the caveats of Rule 5.7 and the Comments to determine whether the Rules apply to both businesses or only to the law firm.