Financial Management

Attorney’s Financial Management Company Deemed Conflict of Interest

On Oct. 6, the New York State Bar Association Committee on Professional Ethics (the Committee) issued Ethics Opinion 1231, in which it determined that an estate-planning attorney, who proposed setting up a financial management company that managed trust assets, would have a conflict of interest that would require clients’ informed consent, to be confirmed in writing, at the outset of the attorney’s representation. The Committee also determined that if the financial services provided by the management company, and the legal services provided by the estate-planning attorney, weren’t distinct from each other, the attorney would be subject to the New York Rules of Professional Conduct (the Rules) governing the attorney-client relationship regarding nonlegal financial management services. The Committee also determined that regardless of whether the legal services and nonlegal services were distinct, the attorney must comply with the Rules regarding business transactions with clients, whenever an entity with which the attorney is affiliated or owns an interest provides nonlegal services to a client.

The estate-planning attorney believed that holding an ownership interest in a financial management company wouldn’t affect the attorney’s advice given to clients. The Committee thus examined whether, under the Rules, an attorney who provides estate-planning advice and assistance, and who establishes revocable and irrevocable trust for clients, may also have a financial interest in a separate company that would manage assets held in trusts. After reviewing Rules 1.0, 1.7, 1.8 and 5.7 and the facts of the case, the Committee determined that the attorney’s belief that their representation wouldn’t be adversely affected was reasonable. Thus, the attorney would have to procure a client’s informed consent at the outset of any estate-planning representation that may lead to advice about forming a trust. The attorney would also have to explain to a client the risk that the attorney’s advice may be influenced by the attorney’s self-interest, provide alternatives for such a client and obtain in writing the client’s informed consent.