I'm a lawyer who is also a licensed investment adviser and securities sales rep. Can I sell investment services and give legal advice to the same client, represent the investment firm I work with, and trade referrals with it?

Plain-English summary

The inquiring attorney had a general law practice concentrated in securities matters and was also licensed as an investment adviser representative and a securities sales representative, meaning he could give investment advice for a fee and execute securities transactions for commission. He planned to run an investment advisory business and practice law at the same time. The investment adviser and broker-dealer he would be associated with was also his law client. A prospective client had sought legal advice on corporate matters, asked him to draft wills, and asked for retirement-planning investment advice. He asked three questions: (A) may he give both legal and investment services to that prospective client; (B) are there limits on his legal representation of his business associate or other investment professionals; and (C) may he exchange referrals with his business associate.

On (A), the panel advised against providing both legal and investment services to the same client. Relying on its earlier Opinion 96-26 (the attorney-insurance-broker opinion), the panel reasoned that where a lawyer has a financial interest in a client's investment decisions, his independent professional judgment in recommending investments would unavoidably and impermissibly be affected by his personal interest in managing and selling them. Given that inherent conflict, the panel concluded, "the requirements of fairness and reasonableness to the client imposed by Rule 1.8(a) are impossible to satisfy."

On (B), the panel advised that the attorney could continue to represent his business associate and other investment professionals, but only if he satisfied Rules 1.7(b) and 1.8(a). Because he proposed to form the investment business with a current law client, he first had to meet Rule 1.8's requirements for a business transaction with a client: full written disclosure of the terms, a reasonable opportunity for the client to seek independent counsel, and the client's written consent. The panel noted his continuing fiduciary duty to the associate and his obligation under Rule 1.7(b) to determine whether his own business interests materially limited the representation.

On (C), the panel advised that he could accept referrals of law clients from his associate and refer law clients to the associate for investment services, consistent with Rule 7.2(c), so long as he neither paid nor received anything of value for the referrals and did not agree to trade referrals. He had to disclose the business relationship and obtain client consent under Rule 1.7(b). If he referred a law client to the associate for investment services, he had to satisfy Rule 1.8(a) and could accept a referral fee only if the other business's rules allowed it and he disclosed that fact; if he instead served as the investment adviser, he could not refer the investment client to another lawyer for a referral fee or fee share.

Currency note

This opinion was issued in May 1999, after the Rhode Island Supreme Court adopted the Model Rules of Professional Conduct effective November 15, 1988, and it applies Rules 1.7, 1.8, and 7.2 as originally adopted. The Rhode Island Supreme Court later revised the Rules of Professional Conduct in 2007 as part of the nationwide Ethics 2000 process. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule mentioned here.

Common questions

Q: Can a lawyer who is also an investment adviser sell investment services and provide legal advice to the same person?

A: The opinion advised against it. It reasoned that the lawyer's financial interest in the client's investment decisions would impermissibly affect his independent professional judgment, making the fairness and reasonableness that Rule 1.8(a) requires impossible to satisfy.

Q: May the lawyer represent the investment firm he is associated with when that firm is also his law client?

A: Yes, subject to conditions. Because forming the business with a current client is a business transaction with a client, the opinion required him to satisfy Rule 1.8(a) (fair and reasonable terms, written disclosure, an opportunity to consult independent counsel, and written consent) and Rule 1.7(b).

Q: Can the lawyer and his investment associate send each other referrals?

A: Yes, but under Rule 7.2(c) he could not pay, be paid, or give anything of value for a referral, and could not agree to trade referrals. He had to disclose the business relationship and obtain the client's consent, and could accept a referral fee only if the other business's rules permitted it and he disclosed it.

Q: Did the panel address the securities laws governing this arrangement?

A: No. The opinion stated that its guidance was restricted to interpretations of the Rules of Professional Conduct and did not extend to the Rhode Island Uniform Securities Act or other laws bearing on the inquiry.

Background and rules framework

The opinion applied Rhode Island Rules of Professional Conduct 1.8 (Model Rule 1.8), 1.7 (Model Rule 1.7), and 7.2 (Model Rule 7.2) as originally adopted. Rule 1.8(a) bars a lawyer from entering a business transaction with a client or acquiring an interest adverse to a client unless the terms are fair and reasonable and fully disclosed in writing, the client has a reasonable opportunity to seek independent counsel, and the client consents in writing. Rule 1.8(b) bars using information relating to the representation to the client's disadvantage absent consent. Rule 1.7(b) governs material-limitation conflicts arising from the lawyer's own interests. Rule 7.2(c) bars giving anything of value for recommending the lawyer's services. The opinion cited In the Matter of Scott, 694 A.2d 732 (R.I. 1997), for the requirement that a lawyer satisfy Rule 1.8 before forming a business association with a client.

Citations and references

Rules of Professional Conduct:

• Model Rule 1.8 / RI RPC 1.8(a), 1.8(b) (business transactions with a client; use of client information)
• Model Rule 1.7 / RI RPC 1.7(b) (material-limitation conflict)
• Model Rule 7.2 / RI RPC 7.2(c) (no payment for recommending the lawyer's services)

Cases:

• In the Matter of Scott, 694 A.2d 732 (R.I. 1997), Rule 1.8 requirements for a lawyer's business association with a client

Other opinions cited:

• RI EAP Op. 96-26 (attorney-insurance broker; dual-practice conflict analysis): the panel's controlling rationale
• RI EAP Op. 96-25 (no exchange of referrals for value): cited on referrals
• Conn. Bar Assn. Informal Op. 97-16 (1997) (disclosure of a referral fee): cited on referrals
• Pa. Bar Assn. Op. 97-101 (1997) (no fee for referring an investment client to another lawyer): cited on referrals

See also

• RI EAP Op. 99-09: Of-counsel affiliation is not a firm for imputation
• RI EAP Op. 99-16: Lawyer buying a client's land under Rule 1.8(a)
• RI EAP Op. 99-19: Fee split with a suspended lawyer

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%2099-08.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final

                              Rhode Island Supreme Court
                                  Ethics Advisory Panel
                            Opinion No. 99-08, Request No. 758
                                  Issued May 13, 1999

Facts:

    The inquiring attorney has a general law practice concentrated in securities matters. He/she is

also duly licensed as an "investment adviser representative" of an "investment adviser," and as a "sales
representative" of a "broker-dealer" as those terms are defined in the Rhode Island Uniform Securities
Act. The inquiring attorney states that this means that he/she may provide financial planning and
investment advice for a fee (hourly, by transaction, or based on a percentage of assets under
management), and that he/she may execute transactions in securities for a client and be paid a
commission or a sales charge.

     The inquiring attorney plans to conduct an investment advisory business and to practice law

simultaneously. The investment adviser and broker-dealer with whom the inquiring attorney will be
associated in the investment advisory business is also the inquiring attorney's law client. A prospective
client has sought legal advice about contract, employment, and other matters relating to the client's
corporation. The client also has asked the inquiring attorney to draft wills for him and his spouse, and to
provide them investment advice in connection with retirement planning.

Issues Presented:

     The inquiring attorney asks (A) whether he/she may provide both legal services and investment

services to the prospective client; (B) whether there are limitations under the Rules of Professional
Conduct on his/her legal representation of his/her business associate or other investment professionals;
and (C) whether he/she may accept referrals of law clients from his/her business associate, and may
refer law clients to his/her business associate for investment services.

Opinion:

     (A) The Panel advises that the inquiring attorney not provide both legal services and investment

services to the prospective client. (B) The inquiring attorney may represent the business associate and
other investment professionals provided Rule 1.7(b) and/or Rule 1.8(a) are satisfied. (C) The inquiring
attorney may accept referrals of law clients from his/her business associate, and may refer his/her law
clients to his/her business associate for investment services.
Final 99-08
Page 2

Reasoning:

    A.      Dual Practice

     The Rules of Professional Conduct permit lawyers to practice law and engage in other

businesses or professions simultaneously. In all such cases, the Rules relating to confidentiality, conflict
of interest, transacting business with clients, advertising, and soliciting employment must be observed.
See. R.I. Sup. Ct. Ethics Advisory Panel Op. 96-26. The separate nature of the law practice and the
other business or profession must be made clear to the public.

    In Ethics Advisory Panel Opinion 96-26, the Panel advised an attorney who is an insurance

broker of life, health, and accident insurance that the Rules of Professional Conduct do not permit
him/her to provide estate planning legal services to his/her insurance customers or sell insurance
products to his/her estate planning clients. The rationale set forth in Ethics Advisory Panel Opinion
96-26 is applicable to the instant inquiry and the Panel refers the inquiring attorney to that opinion.

     The Panel recognizes that unlike the attorney-insurance broker who is affiliated with a limited

number of insurance companies, the inquiring attorney's available market of investments includes all
stocks, bonds, mutual funds and other securities. Notwithstanding the unlimited range of possible
investments, the relationship between clients and the investment professional is nevertheless
transaction-oriented giving rise to interests that differ. The Panel believes that where a lawyer has a
financial interest in a client's investment decisions, the lawyer's independent professional judgment in
recommending investments or investment management would unavoidably and impermissibly be affected
by the lawyer's personal interest in managing and selling investments. See R.I. Sup. Ct. Ethics Advisory
Panel Opinion 96-26. "Given this inherent conflict, the requirements of fairness and reasonableness to
the client imposed by Rule 1.8(a) are impossible to satisfy." Id. The Panel therefore advises that the
inquiring attorney may not provide both legal services and investment services to the prospective client.

    B. Business Transaction with Client and Representation Conflicts.

     Adding to the numerous ethics issues raised by the dual practice of law and another profession,

the inquiring attorney proposes to conduct his investment advisory business with a current law client.
Prior to forming the business association described, the inquiring attorney must satisfy the requirements
of Rule 1.8. See In the Matter of Scott, 694 A.2d 732 (R.I. 1997). Rule 1.8 provides in pertinent
part:

    Rule 1.8 Conflict of Interest: Prohibited Transactions -

Final 99-08
Page 3

             (a) A lawyer shall not enter into a business transaction with a client or
             knowingly acquire an ownership, possessory, security or other
             pecuniary interest adverse to a client unless:

                     (1) the transaction and terms on which the lawyer
                     acquires the interest are fair and reasonable to the client
                     and are fully disclosed and transmitted in writing to the
                     client in a manner which can be reasonably understood
                     by the client;

                     (2) the client is given a reasonable opportunity to seek
                     the advice of independent counsel in the transaction;
                     and

                     (3) the client consents in writing thereto.

             (b)      A lawyer shall not use information relating to representation of a
             client to the disadvantage of the client unless the client consents after
             consultation, except as permitted or required by Rule 1.6 or Rule 3.3.

     The inquiring attorney, therefore, must inform the client of their conflicting interests and potential

conflicts of interest, advise the client to obtain independent counsel regarding the business association,
and otherwise comply with the requirements concerning fairness, client consent, and confidentiality.
He/she may continue to represent the client-business associate in legal matters, but in light of his own
related business interests ,must satisfy Rule 1.7(b) which states:
Rule 1.7. Conflict of Interest: General Rule. -

             (b) A lawyer shall not represent a client if the representation of that
             client may be materially limited by the lawyer's responsibilities to
             another client or to a third person, or by the lawyer's own interests,
             unless:

                     (1) the lawyer reasonably believes the representation
                     will not be adversely affected; and

                     (2) the client consents after consultation. When
                     representation of multiple clients in a single matter is
                     undertaken, the consultation shall include explanation of
                     the implications of the common

Final 99-08
Page 4

                     representation and the advantages and risks involved.

    The inquiring attorney must therefore determine whether the representation of this client is

materially limited by his/her own business interests. If so, he/she must obtain the client's consent to the
representation after consultation, but only if he/she reasonably believes that the representation will not be
adversely affected. In continuing to represent the legal interests of his/her business associate, the
inquiring attorney maintains a fiduciary relationship with the associate. As such, he/she will owe the
associate a higher duty than is required in ordinary business transactions, and has continuing obligations
under Rule 1.8. The same considerations under Rule 1.7(b) apply to the inquiring attorney's legal
representation of other investment professionals.

    C. Referrals.

     Consistent with Rule 7.2(c), the inquiring attorney may accept referrals of law clients from

his/her business associate, but he/she is not permitted to pay the associate for channeling legal work to
him/her, or to give anything of value in return. He/she may not agree to accept referrals in exchange for
referring law clients to the associate for investment services. See R.I. Sup. Ct. Ethics Advisory Panel
Op. 96-25. Pursuant to Rule 1.7(b), the inquiring attorney must disclose the business relationship,
including any financial interests, and obtain the client's consent.

    If the inquiring attorney undertakes the legal representation of a client who is also in need of

investment services such as the prospective client described, the inquiring attorney may refer the client to
his/her business associate provided he/she satisfies Rule 1.8(a). He/she may accept a referral fee if such
is permitted by rules and the law governing the other business, but pursuant to Rule 1.8(a), must
disclose that fact to the client. See Conn. Bar Assoc. Comm. On Prof. Ethics, Informal Op. 97-16
(1997).

     If the inquiring attorney chooses instead to provide investment services to the client, he/she may

inform the investment client when he/she believes that the client should consult a lawyer, and advise the
client to consult with independent counsel. The inquiring attorney may not refer an investment client to
another lawyer and receive a referral fee or otherwise share the fee. See Pa. Bar Assoc. Comm. On
Legal Ethics & Resp., Op. 97-101 (1997).

     The Panel's guidance is restricted to interpretations of the Rules of Professional Conduct and

does not extend to issues under Chapter 11 of Title 7 of the Rhode Island General Laws, or to any
rules, regulations or other law that may have a bearing on the issues raised in this inquiry.