Attorneys setting up to help with clients' investment needs

My Lawyer, My Broker

By Steve Seidenberg.
Broward Daily Business Review

Attorneys setting up to help with clients' investment needs

During the past 10 years, more and more law firms around the country have set up affiliated businesses in such areas as public relations, government lobbying, private investigations, investment advice and economic analysis of litigation damages.

Now a small investment firm from Westboro, Mass., wants to make it easier than ever for a law firm to enter a new line of business. Atlantic Financial, Inc. aims to help law firms create and operate securities trading companies through its broker dealer, [editor update, in 2011 Atlantic Financial became a Registered Investment Advisor and is unaffiliated with any broker dealer].

Atlantic has recently helped the 70-attorney firm of Bowditch and Dewey in Worcester, Mass., set up an affiliate named B&D Advisors. And Atlantic is currently in discussions with a dozen other firms around the country about setting up similar affiliates.

"This was in some respects a response to what our clients were looking for," said Robert Longden, managing partner of Bowditch and Dewey. The firm has a substantial trust and estate department, which manages more than $250 million in trust assets, but clients frequently asked the firm to manage more than just trusts, he said. "Many times clients have asked us if we could deal with individual accounts and retirement accounts, but we couldn't because we could only manage the trust accounts as fiduciaries," Longden said. So the firm worked with Atlantic to launch B&D Advisors.

B&D Advisors has a small staff: three partners from Bowditch along with several of the law firm's support staff. All three partners and one of the support staff have become registered through the National Association of Securities Dealers and Atlantic Financial's broker dealer, [editor update, in 2011 Atlantic Financial became a Registered Investment Advisor and is unaffiliated with any broker dealer] as Series 7, general securities representatives, which allows them, in essence, to act as stockbrokers. B&D Advisors is a registered investment advisor with the commonwealth of Massachusetts, which allows the business to provide investment advice.

B&D Advisors remains closely connected with Atlantic Financial and Atlantic Financial's broker dealer, [editor update, in 2011 Atlantic Financial became a Registered Investment Advisor and is unaffiliated with any broker dealer] "It's an ongoing partnership," said Bruce Fenton, Atlantic's president. "We go in at least once a week. We actively support them with clients and NASD compliance, and we provide lots of sales and marketing support."

Not 'revolutionary'

Not so long ago, many in the legal profession would have been shocked by the idea of a law firm opening up an affiliated investment business. But no longer. "This is not a revolutionary concept," said George Kulman, the American Bar Association's ethics counsel. "It has been a good 10 to 12 years since law firms have decided they want to operate ancillary businesses."

"Firms are in all kinds of businesses now, so it isn't all that shocking that one would set up a subsidiary to go into securities trading," said professor Thomas Morgan of George Washington University Law School in Washington, D.C., who played a key role in writing the ABA's rule on law firms and affiliated businesses. "Most states say that you have to follow all the rules of professional conduct if you want to do this, but the rules don't prohibit this."

Six states, including Massachusetts, have adopted Rule 5.7 of ABA Model Rules of Professional Conduct, which imposes an additional requirement on firms going into ancillary businesses: When a client might not be clear that the services being provided are not legal services, the lawyers involved have to deliver the nonlegal services with all the protections of the model rules (e.g., they will have to protect all information as confidential). In order to avoid this obligation, the lawyers would need to clearly inform the client that the services being provided are not legal advice.

Running an investment business doesn't seem to pose any inherent ethics problem, according to Morgan. But he said, "If the firm starts steering clients to invest in other clients, or if the firm takes an unusually high fee for this service, there are all kinds of ways that this can be overreaching."

Atlantic, which has been in business since December 1994, became interested in setting up law firm affiliates several years ago. It took a long time to create B&D because the attorneys at Bowditch wanted to make sure all the possible bugs were ironed out before proceeding. But Atlantic expects things will move more swiftly in the future.

Atlantic has spoken with about 20 law firms about setting up securities trading affiliates, and is currently in discussions with 12 firms in Boston; Hartford, Conn.; New York; and Providence, R.I. Within several years, Atlantic plans to expand its program to other cities.

"Mid-to large-sized firms are the ones who would benefit from this the most," Fenton said - particularly firms that do a significant amount of work on estate planning or employment law. Such firms have also expressed the greatest interest in this, Fenton said. But he added that the program might also be appropriate for small firms that have niche practices.

For now, at least, B&D Advisors seems to be making some clients happy. The business has gotten more than 50 clients since it opened its doors in early September, according to Michael Brockelman, a Bowditch partner who also works at B&D. "We've had a very, very enthusiastic response from our [law firm] clients," Longden said. And he adds that B&D has also attracted customers who were not previously clients of the law firm.

Steve Seidenberg reports for the National Law Journal, an affiliate of the Daily Business Review.