By Harry S. Margolis
Attorneys have long felt that there should be a bright dividing line between what they do and what non-lawyers do, both to protect the client and to protect the market for legal services. An attorney who only provides legal services and can independently judge the services provided by others, including financial planners, will be able to provide clients with higher quality legal advice and non-legal advice. In short, no conflict of interest will result.
Over the years, I began to question this paradigm for a number of reasons. First, I haven’t always had financial planners who I thought were a good fit for my clients or who would provide them with excellent advice the need at a price they can afford.
Second, while I haven’t received a referral fee for any of my referrals to other professionals, I can’t say that I have not been influenced by who refers business back to me. To some extent this is just a matter of mutual respect. And I have never referred any client to someone who I thought would not represent them well. But to say that I am not affected at all by my own self interest when making referrals would not be honest with myself or with you.
Third, in the case of spousal annuities especially, I and the other lawyers in my firm did all the work in choosing and structuring the annuity for the client, but the insurance agent collected the premium. This did not seem fair.
Fourth, clients prefer one-stop shopping. While we attorneys recognize a distinction between estate planning and financial planning, many clients do not. They would much prefer to have everything handled by their most trusted advisor.
Fifth, clients need the best solution for whatever challenges they face. That solution may be a legal one or a financial one. As the saying goes, if all you have is a hammer, everything looks like a nail. By broadening the tools at our disposal, we can better serve client. Of course, this can be done through collaboration with other professionals. But it can often be accomplished more efficiently and effectively in house – back to the concept of one-stop shopping.
Sixth, we have long taken fees acting as trustee for clients. This extension of the practice of law, while commonplace in Boston, is rare in other parts of the country. Since we and our clients are comfortable with this quasi-legal role, taking the step of accepting insurance commissions did not seem so great. And we refer to it as accepting commissions rather than selling insurance, because we do not sell insurance to anyone who is not already a client of ours for legal services.
Seventh, conflicts of interest abound in life in general and the practice of law in particular. What matters is how we deal with them. With strict rules on the circumstances under which I and my firm take insurance commissions, we feel that conflicts of interest can be minimized if not eliminated. These rules include the following:
Full written disclosure to clients.
We only take commissions in cases where clients do not have existing relationships with other insurance agents.
We only take commissions on insurance we would recommend to clients in any case, including spousal annuities, life insurance funding special needs trusts, and long-term care insurance.
We only take commissions for insurance to our clients for legal services.
In short, after many years of contemplating taking this step, we came to the conclusion that we could accept insurance commissions under these guidelines and that doing so would allow us to better serve our clients, our firm and ourselves.
