Can a New York lawyer agree to swap client referrals with a securities broker or insurance agent who is not on the approved nonlegal-professions list?

Plain-English summary

The opinion addressed the 2001 multidisciplinary-practice amendments to the New York Code of Professional Responsibility, which added DR 1-106 (lawyers providing nonlegal services) and DR 1-107 (lawyers contracting with separate nonlegal professional firms). DR 1-107(A) lets a lawyer enter a formal contractual relationship with a nonlegal professional only if that profession appears on a list maintained by the Appellate Divisions (at the time: architects, CPAs, professional engineers, land surveyors, and certified social workers) and only with prescribed client disclosures and a Statement of Client's Rights.

The committee focused on DR 1-107(C), which carves out "relationships consisting solely of non-exclusive reciprocal referral agreements or understandings" from DR 1-107(A) entirely. Reading DR 1-107(C) together with DR 2-103(B)(1), the committee concluded that a bare nonexclusive mutual referral arrangement is not the prohibited giving of "value" to obtain employment. The committee reasoned that if more entangled relationships (shared advertising, shared premises) are permitted for listed professions, it would be anomalous to forbid the least-entangled arrangement, a simple swap of referrals.

Because DR 1-107(C) exempts these arrangements without limiting them to the listed professions, the committee found no textual or policy basis for confining reciprocal referrals to architects, accountants, engineers, surveyors, and social workers. Securities brokers and insurance agents, professionals lawyers routinely work with on estate, real estate, and investment matters, were therefore eligible. The committee drew support from the 2002 ABA amendment to Model Rule 7.2 (then 7.2(b)(4)), which expressly allows nonexclusive reciprocal referral agreements with other professionals when the client is informed.

In practice

Under the Code as it stood in 2003, the opinion held that a lawyer could exchange referrals with a broker or insurance agent only within strict limits. The arrangement could not include fee sharing (DR 1-107(A)(2)), and it could not go beyond a loose referral understanding into joint advertising or shared expenses, because those closer ties were reserved to professions on the Appellate Division list. The opinion also held that any such arrangement must be nonexclusive: the lawyer could never commit to refer all clients or a fixed quota, because the lawyer must keep exercising independent professional judgment for each client (EC 1-16).

The opinion treated the referral relationship as generally a personal-interest conflict under DR 5-101(A), so the lawyer was required to disclose the arrangement and obtain the client's consent before referring. The opinion noted that the depth of disclosure depended on factors such as how much of the lawyer's business came from the referrer; a short statement might suffice in some cases, a fuller explanation in others.

Common questions

Q: Can a New York lawyer refer clients to an insurance agent who refers clients back?

A: Yes. The opinion concludes a nonexclusive reciprocal referral arrangement with an insurance agent or securities broker is permitted under DR 1-107(C) and DR 2-103(B)(1), even though those professions are not on the Appellate Division list.

Q: Does the lawyer have to share the referral arrangement with the client?

A: Yes. The opinion treats the arrangement as a personal-interest conflict under DR 5-101(A), requiring disclosure and client consent before a referral; the opinion says a prudent lawyer will ordinarily tell the client about the arrangement.

Q: Can the lawyer agree to send all matching clients to one broker?

A: No. The opinion holds the arrangement must be nonexclusive; the lawyer cannot promise to refer all clients or a set quota because the lawyer must exercise independent judgment for each client (EC 1-16).

Q: Can the lawyer and the broker share fees or split costs?

A: No fee sharing (DR 1-107(A)(2)), and the opinion holds that cost sharing or joint advertising would push the relationship beyond a bare referral arrangement into DR 1-107(A) territory, which is limited to listed professions.

Background and rules framework

The opinion interprets New York's former Code of Professional Responsibility, principally DR 1-107 (contractual relationships between lawyers and nonlegal professionals) and DR 2-103(B)(1) (payment for recommending employment), with the personal-interest conflict rule DR 5-101(A) governing disclosure. The Model Rules analogues are Rule 5.7 (responsibilities regarding law-related services), Rule 7.2 (payment for recommendations, including the reciprocal-referral exception), and Rule 1.7(a)(2) (personal-interest conflicts). New York replaced this Code with the Rules of Professional Conduct in 2009; the DR numbers cited here are historical.

Citations and references

Rules of Professional Conduct:

• MR 5.7 (responsibilities regarding law-related services)
• MR 7.2 (payment for recommending services; reciprocal referral exception)
• MR 1.7(a)(2) (personal-interest conflicts)
• NY DR 1-106, DR 1-107, DR 2-103(B)(1), DR 5-101(A); EC 1-14, EC 1-16

Other opinions cited:

• N.Y. State 741 (2001): paying dues to a referral organization is giving "value"
• N.Y. State 566 (1984): lawyer may not pay a real estate brokerage to recommend the lawyer
• N.Y. State 753, 755 (2002): lawyer-owned nonlegal businesses as referral sources

See also

• NY State Bar Op. 779: Paying a marketing organization for referrals
• NY State Bar Op. 1043: Referral fee from a real estate broker's commission
• NY State Bar Op. 1086: Referral fee from an investment advisor

Source

• Landing page: https://nysba.org/ethics-opinion-765/