Increase Revenues, help clients by becoming a registered investment representative

News- economics and investments


Massachusetts Lawyers Journal - November 1995 Volume 3, Number 3
The Practicing Lawyer
By: Bruce Fenton
Today many lawyers and law firms are looking for new ways to increase revenue. Meanwhile many of their individual and corporate clients have a strong need for investment advice. The solution is for attorneys to meet their client's investment needs by expanding their practice into the investment area. It is now possible for an attorney or law firm to become registered with the NASD (National Association of Securities Dealers) to oversee transactions and guide clients' investment decisions. Registered attorneys can assist clients with the purchase and sale of mutual funds, retirement and college planning, pension plans, stocks from all major exchanges, government and municipal bonds, CDs and managed accounts.
Attorneys registered with independent brokerage firms can work with all of the nation's top money management firms, mutual fund companies, and bank trust departments. These attorneys receive the same commission rate that stockbrokers and financial advisors receive. Not only does becoming registered greatly increase revenues, it also enables attorneys to offer a unique level of service and expertise to their clients. Attorney Richard VanNostrand of Mirick, O'Connel, DeMallie, and Lougee, President of the Worcester County Bar Association made a few observations; "Attorneys are trusted advisors as a result, clients frequently approach them for advice when they come into sizable sums of money." Attorney VanNostrand also said: "In the last five years many attorneys have found it harder to make a living, like most people, they look for ways to increase their income." A registered attorney who matches their investment expertise with clients' investments needs is able to provide a unique and valuable service and increase their revenue.
Jamie Probber, an attorney from New York City with 12 years of legal experience, recently entered a registration program. "Becoming registered is very good for many attorneys because it is a natural extension to many legal services that attorneys perform, it also opens new doors and provides attorneys with new ways to market themselves." Attorney Probber said that becoming registered was a unique way to expand into an interesting area without greatly altering his legal practice. "It is very important that registered attorneys work with all funds and investment products to set themselves apart from major investment and fund companies who recommend proprietary products and investments from their own inventory." Attorney Probber gives particular focus to ERISA pension plans and investments for wealthy individuals. He added "It is prudent for attorneys who engage in trust management and fiduciary relationships to increase their knowledge level by becoming registered with the NASD."
How do I remain objective and avoid conflicts of interest?
This is perhaps the most common concern among attorneys. It is imperative that attorneys expanding in this area do not harm existing client relationships by creating a conflict of interest. There are two actions an attorney can take to avoid this. First, in carrying out transactions an attorney should make sure that they work with an independent clearing firm that does not apply pressure or bonuses for certain investments. This way, attorneys can maintain complete objectivity with all investments they recommend. A registered attorney should stress to their client that they have all mutual funds and all other investments available to them. Unlike a proprietary firm, a registered attorney has no incentive to recommend anything other than what is right for the client. Secondly, the attorney should lay out a clear fee schedule that separates legal and investment fees, a client should also be aware that an attorney is receiving a commission for investment business. When billing clients, the law firm should not include any additional charges or fees for investment advice or time spent with a client discussing investing.
How do I receive compensation?
According to Forbes Magazine, last year the average full service stockbroker earned about $90-100,000. An attorney with a well-developed client and contact base should be able to increase their income by a similar amount. Attorneys and law firms who focus on large estates and pension plans, or those which have internal trust departments could generate substantially more. A reasonable expectation would be that an attorney would net about .5% of the assets they manage each year. Thus a registered attorney with $100 million in client assets can average about $500,000 income per year. Many individual transactions such as mutual funds and annuities can net a registered attorney as high as 2.5% on a single transaction. Due to an existing client base attorneys can increase revenue with a minimum amount of effort. Attorneys have two advantages over regular registered investment professionals: they have an existing client base and they have additional legal knowledge they can apply to their practice.
How do I know that I am recommending the right investments and how do I stay educated in the investment field?
With over 19,000 money managers, 4000 mutual funds, and thousands more stocks and bonds it can seem overwhelming for a registered attorney to keep on top of all the latest financial developments. Thanks to the information age, is fairly easy to stay informed. The easiest way for an attorney to gain leverage and reduce the need for knowledge about market intricacies is to pass on the day to day account management to a more qualified expert. Mutual fund managers, and money management firms can fill this role. An attorney recommending mutual funds and money management firms to his or her clients can rest assured that the assets are being professionally managed by a large, professional and full time team. A registered attorney who tries to pick their own stocks and bonds for clients will find themselves needing far more information. Selecting appropriate mutual funds and money management firms for clients is fairly easy for an attorney with basic financial services knowledge. Attorneys can also make use of independent services such as Morningstar's mutual fund rating company, CNBC, or online stock and mutual funds quote services. Quote services work through a computer modem and usually cost about $50-$80 per month for a limited use plan.
Does my law firm have to provide custody of assets, statements, and account insurance?
The clearing firm, which should be a high quality nationally recognized investment firm, has custody of the client assets (in client name). The clearing firm handles account insurance, statements and other account paperwork. The clearing firm also sends trade confirmations, prospectuses and client statements with the attorney's name on them. When a client wishes to make a transaction the registered attorney calls a trade desk directly and gives them the account number and trade information.
How does an attorney become registered and what are the costs?
To become registered an attorney needs to pass the Series 7, a comprehensive NASD securities exam. Attorneys can pass the exam after 3-10 weeks of study. Study time depends on how intensely the attorney studies the materials and whether or not they take a `cram course.' Before taking the exam the attorney must be sponsored by an investment firm. Ideally, the firm will also provide marketing assistance, business consulting, advice and clearing services on an ongoing basis in a simple `turn-key' program. The total costs are usually about $1200 for an individual or $2000-3000 for a mid sized firm.
Who is available to assist registered attorneys?
Most money management firms and mutual fund companies have marketing representatives who specialize in assisting registered persons. These individuals can answer questions, provide literature, conduct seminars with attorneys and even speak with select clients. The investment firm that sponsors the attorney should provide even more personalized and intense support for the registered attorney. Many individual transactions, such as mutual funds and annuities can net a registered attorney as much as 2.5% on a single transaction.
What types of practices benefit the most by becoming registered?
Attorneys and firms who benefit most from registration are those which focus on estate planning, wills and trusts, ERISA law, pension plans, and those who deal with wealthy individuals or small to mid-sized companies. Clients who can benefit from having a registered attorney range from middle class IRA and CD holders to wealthy mutual fund and managed account investors and companies of all sizes. Tax attorneys and other attorneys who directly deal with client assets also can benefit by becoming registered.
What changes could I expect in the way I do business day to day?
The amount of effort an attorney puts toward expanding their investment practice will directly reflect the increase in revenue they see. At a minimum, an attorney will want to send out a mailing to their clients and associates to make them aware of the services they are able to offer. A seminar in which the attorney and a guest speaker objectively discuss various investment services is also useful. Another good way to increase business in this area is for the attorney to offer free financial planning reviews to each client in which the attorney can recommend investments. Attorneys who wish to expand more aggressively may wish to invite non clients to seminars through advertising or by sending out invitations in bulk (the attorney should make sure that they comply with legal advertising regulations). An attorney can also expand their practice by meeting with local business owners and CFOs to discuss their pension plans. The attorney can offer to review their pension plans for compliance with ERISA regulations (at no charge) and then review the investment performance of the plans and make recommendations.
In addition to increased revenue, becoming registered can give attorneys many other benefits. The added investment service increases referrals because of its unique nature. Existing business can increase because the program reminds clients that the law firm is `full service' and capable of assisting with a variety of needs. Registered attorneys have the ability to confidently recommend clients to an investment professional (that is, the in-house attorney). The name of the firm is kept in front of clients through statements and additional contact. Being registered can open new doors to large estate managers and pension plan administrators who enjoy having their legal and investment concerns taken care of under one roof. Attorneys can gain positive publicity through seminars and press relating to this program. Registered attorneys have a competitive advantage over non registered attorneys.
Becoming registered is not for every attorney; it calls for a change in how business is conducted and the way attorneys present themselves. Once registered, attorneys need to realize that their income from investment business will increase with the amount of effort taken to expose clients to their new services.

Atlantic Financial helps attorneys become NASD registered and offer investment services to clients. Email : Inquiries welcomed.
Copyright 1996 Bruce Fenton