Ethics Opinion 116

By Committee on Professional Ethics

NEW YORK STATE BAR ASSOCIATION
Professional Ethics Committee Opinion

Opinion #116 – 10/06/1969 (16-69)

Topic: Investment Services; Compensation
Digest: Management of investment account for client proper
Canon: Former Canon 27

QUESTION

May a lawyer properly agree, at the request of a client to manage an investment account for his client, with full trading privileges, in consideration of which the lawyer would receive as compensation an annual payment equivalent to 1/2 of 1% of the average net value of the assets in the account? In addition, the client would pay a fee equivalent to 20% of the annual appreciation in the account, based upon both realized and unrealized capital gains, as well as upon income received. Any net loss would be borne exclusively by the client, although it would be applied against appreciation in subsequent years for the purpose of calculating when the additional fee of 20% would be earned. The arrangement would be terminable at any time by either the attorney or his client.

OPINION

It is not unethical for a lawyer to agree to manage a discretionary investment account for a client, assuming that he is qualified to do so.    He should keep such activity entirely distinct and apart from his practice of the law, should not use it as a means of attracting legal business, and in rendering the service should continue to observe the standards of conduct required of him as a lawyer. (Canon 27; N.Y. County 273; ABA 57; ABA Unreported Committee Decision 44, quoted in Drinker “Legal Ethics at page 286.) The compensation charged for such service should not be unconscionable or overreaching, and should be consistent with the charges customarily made by other investment counsel.

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