Ethics Committee Formal Opinion # 1998-99/10 

Presented to the Board of Governors May 18, 2000


Despite the fact that the Ethics Committee thoroughly examined the issues raised by this proposed referral-fee arrangement over the course of several months, no consensus could be reached.

One group of Committee members believe, based primarily on its interpretation of Rule 1.7(b) and Rule 2.1, that the proposed referral plan is a non-waivable conflict.  Members who view the conflict as per se unethical object to the ongoing nature of the referral fee that the attorney would receive for the duration of the relationship between the financial adviser and the client, despite the fact that no legal consultation or legal work (as discussed below) would be involved.  Such an ongoing potentially lucrative fee could impair the attorney’s objectivity and independent judgment.  This group feels that the ethical problems inherent in this referral plan cannot be mitigated or cured by full disclosure of the arrangement to the client and an informed client consent.

A number of Committee members strongly disagree with the first group’s reasoning and believe the proposed referral-fee plan could be implemented without violating the rules of professional conduct, although they agree that it could be an ethically perilous path.  In each instance, the attorney would have the responsibility to analyze a client’s unique situation and could proceed only where appropriate and with great caution following a full disclosure to the client and the client’s informed consent.

The Committee is thus not issuing a blanket prohibition against such a referral fee plan but is in agreement that there is the inherent potential for conflict and urges each attorney considering participating in such a plan to proceed warily.


            May an attorney, in exchange for referring clients to an investment advisor, receive a referral fee in the form of an ongoing percentage of the investment advisor’s commission derived from the investments made by the investment advisor on behalf of the referred clients?

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