ABA PONDERS RULE CHANGE TO INSTIGATE A FEE-FOR-ALL: PLANNERS, FUNDS WELCOME MOVE, BUT LAWYERS MIXED

Like Joshua at the battle of Jericho, a powerful panel of the American Bar Association is trying to bring down the walls that separate lawyers from what they see as the Promised Land: sharing fees with other professionals.

Many financial planners, brokerages and accountants welcome the move, which could also give mutual funds and insurance companies more ways to sell what they have to offer.

Some are wasting no time in lining up lawyers. Brokerage B.C. Ziegler and Co. of West Bend, Wis., is in conversations with several law firms, says Richard Glaisner, senior managing director. “As soon as (the ABA proposal) is approved, we will have a product that’s designed to give the attorneys what they need to go to their clients.” Ziegler supervises $8.1 billion, including $3 billion in portfolio management for accounting firms like Ernst & Young LLP.

The major opposition to the proposal, made in a report last week, is expected to come from lawyers themselves. Many fear that if they’re allowed to share fees or to form partnerships with other professionals in “multidisciplinary practices,” conflicts of interest will arise.

“As soon as I work for somebody else, I am beholden to somebody else,” says Lawrence Fox, a partner in Philadelphia’s Drinker Biddle & Reath LLP. “Under this, Merrill Lynch would swear fealty to our rules of conduct. What does that mean? They’re outside of our discipline.”

That isn’t seen as a problem by law firms that have already started their own investment advisory businesses as separate ventures.

Wescott Financial Planning Group Inc. of Philadelphia, for instance, supervises $375 million and is owned by Philadelphia law firm Duane Morris & Heckscher LLP.

The proposal would not change their business much, says Grant Rawdin, Westcott’s president and CEO, but it “will be significant for many firms that will have principals who are not lawyers but who are very critical to the business.”

That’s the sort of thing that Jack Sharry, president of the $60 billion retail mutual fund division of Phoenix Investment Partners Ltd. in Hartford, Conn., sees happening: lawyers joining with brokers and planners to offer a complete package of financial services.

“Advice continues to be a growth business,” Mr. Sharry says.

In agreement is Russ Alan Prince, a Shelton, Conn., fund consultant: “You’re going to find more lawyers, instead of providing referrals to insurance agents and investment advisers, they will try to keep the business in-house. Meanwhile, all the different product manufacturers will very actively target the lawyers like they’re targeting accountants.”

The ABA is considering the action largely because over the past decade accounting firms began buying or starting law firms in Europe, Australia and Canada. Accounting firms in this country, too, are now among the largest employers of lawyers, typically using them as tax consultants.

accountants want even more

Accounting firms generally think the lawyers’ proposal doesn’t go far enough. They would like to see the ABA do away with rules that keep lawyers in big firms from representing clients with conflicting interests, rules that would remain in place under the proposal.

With global law firms, those rules “are not pragmatic,” says Jeffrey Peck, managing director of the Washington government affairs office for Arthur Andersen LLP, which employs 2,000 lawyers.

Only 3% of certified financial planners are licensed to practice law, says the Certified Financial Planner Board of Standards in Denver. Some work as lawyers, others as planners.

One of the latter is Donna Barwick, a principal with Arden Group, an Atlanta financial advice business with $600 million under discretion.

“The pressures on profitability in the practice of law” are forcing the change,” Ms. Barwick says, adding that accountants and planners lean on lawyers to cut rates. “They shop for the lowest fee. The lawyer is being reduced to the role of scrivener.”

Joseph Votava is a CFP who practices law. A partner in the Rochester, N.Y., law firm Nixon Hargrave Devans & Doyle LLP, he is president of the International Association for Financial Planning. He also believes the ABA proposal makes sense. “If we limit ourselves to litigation and drafting, how do we grow?”

Mr. Votava sees partnerships between financial planners and personal injury and divorce lawyers who “get very large verdicts for their clients. A company that could provide structured settlements to the plaintiff”– such as long-term payouts designed to minimize taxes — “could share profits on those arrangements.”

“Divorce lawyers know emotional issues but are not necessarily experts on taxes and managing money. They need people to partner with on that front.”

big boys first targets

Lawyer-CFP Richard Ploss, a solo practitioner of estate and trust law in Bedminster, N.J., believes law firms with large trust and estate departments will face the most competition from accounting firms.

“The large accountants already have the lawyers in place,” Mr. Ploss says. “It’s a lot easier for them to jump right into this.”

It’ll take longer, he adds, to “ripple on down to affect people like me and the regional and smaller firms.”

Discount brokerage giant Charles Schwab Corp. of San Francisco would not comment on the proposal, but it is well situated to draw on lawyers, having operated its AttorneySource referral program to estate lawyers since 1995.

Another company in a good position: Lincoln Financial Advisors of Hartford, Conn. It’s the distribution company for Fort Wayne, Ind.-based insurer Lincoln National Corp., which manages $130 billion. Last year it entered an alliance with BDO Seidman LLP, a national accounting firm in Chicago, which gives it exclusive access to BDO Seidman’s clients for financial and estate planning.

That gives Lincoln a leg up when approaching lawyers, says Mike Hemp, senior vice president and chief executive officer. “In the high-end marketplace, individuals who fit that category have needs for tax planning, which is an accountant-type speciality, and estate planning and wealth transfer planning, which is a legal speciality… Then there’s a financial product specialty, and that’s us. When you take the three legs of that stool, we’ve had a lot of experience in working with the other two.”

The ABA recommendation will be considered at the association’s annual meeting in Atlanta in August. If it wins approval, it would be up to states to decide whether to adopt the new rules, a process that could take at least two years.

Mr. Peck, the Andersen lobbyist, believes conflicts will be less than many think. “CPA rules have extensive requirements for keeping client information confidential,” he says. “The reality is the rules on confidentiality is a shared value.”

The Securities and Exchange Commission isn’t so sure. In January, its chief accountant, Lynn Turner, wrote the ABA expressing concern that the independence of auditors would be hurt by sharing fees. The SEC would not comment further, but Mr. Fox, the Philadelphia lawyer, has similar fears:

“If we are owned by non-lawyers and become profit centers for major financial conglomerates who offer mixed services,” he worries, “we will lose our independence.”