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96/97-13

 

Abstract 96/97-13

Summary of Facts Provided

A company is a broker-dealer and registered investment advisor ("Company") licensed under the securities law of the United States and authorized to do business in Colorado. Company is qualified to act as an investment advisor and broker-dealer on a nationwide basis through its network of associated investment advisor representatives ("Advisors"). Through its Advisors, Company proposes to offer a fee-based asset management program to customers, who would include legal clients referred by "participating" attorneys. In return for the referral, the attorney would receive an ongoing fee if an account is opened by the client. The attorney could monitor the client's account, as deemed appropriate, but would have no authority to manage or assist the Advisor in the management of the client's account. The proposed fee would be a split of the investment management fee in an amount agreed upon by the attorney and the Advisor. This arrangement would be subject to the knowledge and written consent of the client.

Issues and Conclusions

May an attorney ethically be paid a fee for referring a client to an investment advisor? No, because Colorado Rule 1.5(e) prohibits all referral fees. Such an arrangement would create impermissible conflicts of interest (Colorado Rules 1.7 and 1.8), interfere with the professional independent judgment of the attorney (Colorado Rule 2.1) and might constitute splitting fees with a nonlawyer (Colorado Rule 5.4(a)). While counseling and advising clients can include referring them to nonlawyers in appropriate situations, such referrals should be based wholly on the skill, competence and other attributes of the nonlawyer and not at all on the lawyer's expectation of a fee.