Tug-of-war between lawyers and financial advisors escalates: Opinion
April 13, 2015 by Mike Anthony, JD, CMP™
There’s always been a tug-of-war between legal providers and financial services. But lately, it seems that both sides are adding muscle to the fight. Recent rulings in Pennsylvania and Florida push these issues to the extreme.
There are lawyers who do financial planning and provide financial services. Most state bar associations allow this, with certain caveats in order to protect the solemnity of the bar license and unbiased nature of the legal advice. Typically, as long as the dual role is disclosed, the attorney can have dual licenses and provide both services. The ABA model code of ethics allows for this type of activity and most states follow it.
In areas of estate planning and Medicaid planning, there is often a blur in the line where financial advice becomes legal advice and vice versa. Many estate planning and Medicaid planning strategies are only accomplished through the use of IRAs or annuities, which are intrinsically the domain of financial advisors. In my world of Medicaid planning, most states attorneys are hard-pressed to protect an IRA without the assistance of a financial advisor who can accomplish a rollover to a Medicaid compliant annuity.
In the last few months, both sides appear to be sharpening their knives, as rulings in Florida and Pennsylvania have pushed the limits to the extreme.
In Florida, the state Supreme Court issued an ethics opinion in January which attempts to classify all advice concerning Medicaid eligibility as the practice of law. Their rationalization is that the body of Medicaid rules are so complex that only an attorney can understand them and provide advice on how to adequately navigate them. The problem with that is that most of the advice necessary to achieve eligibility is financial in nature, and may even require the use of a financial product. Annuity companies who write these kind of products are either pulling out of Florida or requiring that an attorney certify that they were the ones who gave the advice to purchase the product.
But in Pennsylvania, it’s just the opposite. In January, their state bar association became the first in the nation to prohibit lawyers from doing double duty as a financial advisor. Lawyers who are state or federally licensed financial advisors or insurance agents are now barred from recommending or making an investments for clients if they or their family members have a financial stake in the transaction. The bar association goes even further and prohibits lawyers from giving financial advice unless they have specific registrations with the state or the SEC.
Both of these organizations have a duty to curb abuses and put rules in place that protect the public. But, in reality, these rules end up causing more problems for the public because they restrict access to viable services. Fewer non-lawyers will likely be a part of Medicaid planning in Florida because of the complications of having to have an attorney sign off on every piece of written business. Simple things like qualified income trusts (QITs) must now be drafted only by attorneys in Florida. All other states that require a QIT provide forms or templates to the public because it’s impractical to have applicants for a poverty program be forced to hire an attorney for such simple boilerplate trust agreements.
The board I chair has already filed a notice with the Florida Supreme Court in support of challenges being brought by non-lawyer financial advisors who are being encroached upon by such a strict rule. Any rule that attempts to corner the entire market is impractical and a true disservice to the public. If you combined the Florida rule with the Pennsylvania rule, financial advisors couldn’t provide Medicaid spend down financial advice unless they were lawyers and lawyers couldn’t provide financial spend down advice unless they were licensed to sell annuities.
It has always been my firm belief that there is a proper place for lawyers and financial advisors in areas of estate and Medicaid planning. Those who understand this have been able to build a synergy between the relationships in these areas where there are natural overlaps. Rules like these only make it harder for advisors and their clients to get the kind of advice they need. They foster more disconnects between these siloed professions, rather than more integration — leaving one to ultimately wonder who’s interests they’re really looking out for, the public’s or their own.