Coming Soon To New York–Lawyers In ‘Our’ Business?
As of November 1, New York will become the first state in the nation to permit attorneys to form Multi-Disciplinary Practices.
A MDP is a professional entity providing legal as well as other services, such as accounting, technology consulting, or financial planning. Currently MDPs, though common throughout much of the rest of the world, are limited only to the District of Columbia in the United States. Now, because of New Yorks tremendous influence on the rest of the country, this could change rapidly.
In Europe, MDPs have tended to provide accounting, business consulting and legal services under one roof. Today KPMG and other “Big 5″ global accounting/consulting firms are Europes largest employers of attorneys.
This same model should be a hit in this country as well. In fact, the “Big 5″ are also Americas largest employers of attorneys, but, for the moment, these attorneys technically do not provide clients legal advice, but rather “tax” advice. Doubtless this could change overnight.
When MDPs take hold in this country, financial services will certainly be part of the mix. The repeal of Glass-Steagall, and the regulatory changes allowing CPAs to offer financial services already have banks, insurers, brokers, and CPAs jockeying for position as their clients financial “quarterback.”
Attorneys are entering the fray directly in the few states where they are permitted to accept commissions, but a broad movement towards MDPs would strengthen their hand. Therefore, since many states appear certain to follow New Yorks lead, it is important to study this MDP rule for insights into just how this seemingly momentous change will occur.
Key Features Of New York’s MDP Rule
American attorneys have long resisted MDPs because they fear losing control over the business of providing legal advice. The New York rule eliminates this fear by expressly prohibiting non-attorneys from owning any stake in a MDP or exercising any control over legal activities.
A MDPs attorneys cannot share legal fees with the non-attorneys and the non-attorneys cannot share their fees, commissions or any tangible benefit with the attorneys for mutual referrals. The attorney and non-attorney partners can (within certain guidelines) jointly market their services and they can share in expenses.
A MDPs non-attorney partners must meet minimum educational standards and abide by enforceable ethics rules “reasonably comparable” to the standards for attorneys. No definitive guidance on this has surfaced yet, but one would assume that an insurance or securities license would satisfy this requirement.
Clients referred from one practice area to another (say from legal services to financial planning) must be given a written Statement of Clients Rights in Cooperative Business Arrangements.
How will this affect your practice?
Unless you work in New York State, this change will not affect you immediately. In the long run, however, there is little doubt that financial services professionals everywhere can expect more competition from, as well as opportunities to work with, law firms.
In this regard, the New York laws most interesting features are that while law firms can joint venture with non-legal service businesses, the non-attorneys cannot be owners of the venture, and attorneys cannot share in the revenues the non-attorney service providers generate.
The ownership restriction will certainly be a problem for an established financial professional, but it might not be for a young professional who is willing to forgo an ownership stake for a healthy stream of referrals.
On the other hand, the revenue-sharing restriction should foster a more collegial atmosphere between legal and non-legal service providers looking to form joint ventures.
Most importantly, clients will benefit from improved service because these ventures will be based upon the value created by one-stop shopping, as opposed to the more self-serving proposition of simply increasing revenues by getting into “someone elses” business.
Ultimately, the question is: Do law firms have the client influence to make MDPs involving financial services successful? And if so, in this era of one-stop shopping, are you big and established enough to go it alone, or should you start looking for a strategic partner?
is director, strategic alliances, NFP Securities, Inc., Austin, Texas. He can be reached via email at Aherring@NFP.com
Reproduced from National Underwriter Life & Health/Financial Services Edition, October 15, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.