My Lawyer, My Broker Article
By Steve Seidenberg.
Broward Daily Business Review
Attorneys setting up affiliate firms 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
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.
Atlantic has recently helped the 70-attorney firm of Bowditch and Dewey in
Worcester, Mass., set up an affiliated investment research and trading firm
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 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 licensed through the National Association of Securities Dealers as Series
7, general securities representatives, which allows them, in essence, to act as
stockbrokers. B&D is an investment adviser registered with the commonwealth of
Massachusetts, which allows the business to provide investment advice.
B&D remains closely connected with Atlantic Financial. "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."
It is not, however, an equal partnership. "We're the home office for them," said
Fenton, who explained that his firm will receive 50 percent of the clearing and
transaction fees. "We're the office of supervisory jurisdiction for them. We
hold all their licenses."
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.
While a news release from Atlantic said B&D became the first law firm affiliate
licensed to sell securities, apparently that is not the case. The two-person law
firm of Cohen & Burnett in McLean, Va., has a 4-year-old affiliated business -
Legacy Analytics - that provides investment advice and has members who are
licensed NASD brokers. And the businesses' head partner, I. Mark Cohen, thinks
there are several other small law firms offering the same type of affiliated
How it works
[edited due to outdated clearing and custody information
which was current at the time of the original article publication in 2002]
Atlantic also provides the attorneys at B&D with a lot of help in making
investment decisions. Atlantic's Web site puts it this way: "Registered
attorneys are ... encouraged to defer the actual day-to-day investment decisions
to qualified experts, such as the many mutual fund companies and money
management firms who work with Atlantic Financial. This relieves the registered
attorney from the responsibility of actually picking individual investments and
making judgments about the economy and financial markets."
Even with Atlantic's assistance, however, the Bowditch attorneys who work at B&D
are finding it isn't easy to juggle two different businesses. "It has cut into
the time we have to practice law," Longden said. "I wish there were more hours
in the day."
For now, at least, B&D 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
Copyright 2002 ALM Properties, Inc. All Rights Reserved.
30 December 2002