Disclaimer: With Medicaid, VA, and insurance regulations frequently changing, past blog posts may not be presently accurate or relevant. Please contact our office for information on current planning strategies, tips, and how-to's.
A number of attorneys have asked if they can be both an attorney as well as an insurance agent for their clients. In many ways, this would be a helpful asset because you can help your client plan for the future and can also sell them products that would be best for their situation.
On the other side of that, however, lawyers have authority in their field which could lead to an attorney taking advantage of their client and having them purchase something they may not need.
Pennsylvania Client / Lawyer Interaction
An example, using the state of Pennsylvania, demonstrates a way in which a state may handle such instances where a lawyer is taking advantage of their clients. In 2014, new restrictions were put on PA lawyers with client investments
Lawyers are no longer allowed to invest funds for a client if the lawyer or a family member of the lawyer receives compensation from anyone other than the client. This new rule was in response to a few lawyers who lost millions “investing” for their clients.
Only will a lawyer be allowed to sell or place an investment for a client if “1. the lawyer is independently licensed to do so, AND 2. The lawyer does not have a disqualifying financial interest in the transaction.”
Types of financial interests that would disqualify an attorney from placing an investment would be compensation from a third party or an ownership interest in the entity that issues or manages the investment. For example, Rule 5.8 prohibits lawyers who have insurance licenses to sell insurance or an annuity to their client if they will receive a commission. You can read more about Pennsylvania rules here.
Rule 1.8 Conflict of Interest
As a lawyer, you probably understand when there is a conflict of interest and when you need to redirect your client to other legal counsel. Not only is this important so your client receives the best direction from their unbiased lawyer but it also protects you from possible repercussions should you ignore the conflict of interest and move forward on a purchase.
A lawyer should not enter into a business transaction “with a client or knowingly acquire ownership, possessory, security or other pecuniary interest adverse to a client unless: 1.. the transaction and terms….are fair and reasonable to the client and are fully disclosed…2. The client is advised in writing …and is given reasonable opportunity to seek the advice of independent legal counsel….and 3. The client gives informed consent, in a writing signed by the client…”
Following these key rules is important to make the best decisions for your client rather than what would be best, financially, for you.
Ultimately, if you are a lawyer and also carry an insurance license, you need to keep the two separate in many situations. When a lawyer is selling insurance to non-clients, “[they are]not functioning as a lawyer or dealing with individuals whom [they have] represented as a lawyer.” And thus, the lawyer needs to make it clear that they will not have the attorney-client privilege but rather, they are an insurance agent helping them strictly with insurance.
Each state may have specific regulations for their attorneys who also are some type of financial advisor, so you will still want to check with your specific state to make sure you comply with all necessary rules.