FUNDS EYE LAWYER-REPS: MONEY MANAGERS SEE TRUSTED FAMILY ADVISERS AS LUCRATIVE REVENUE STREAM, MUCH LIKE CPAS

In much the same way they enticed certified public accountants into peddling their products, U.S. money managers are targeting lawyers as a potentially lucrative funnel for directing client dollars into their coffers.

Charles Schwab & Co. has recently begun calling on lawyers in the Chicago area to try and persuade them to join its adviser network, according to several sources within the discount brokerage business and the legal profession. While a spokesman for the San Francisco-based company insists no such effort is under way, a well-placed source there says: “We think (lawyers) are maybe five years behind the CPAs in getting into the field. They could create a significant revenue stream.”

Mutual fund giant Fidelity Investments agrees. The Boston-based company is considering plans of its own to pursue formal relationships with lawyers, says Ray Marcinowski, president of Fidelity’s Investment Advisory Group. “We do it now on an informal basis,” he says.

There’s more. Investment Management & Research, a broker-dealer subsidiary of St. Petersburg, Fla.-based brokerage Raymond James Financial Inc., this spring launched an effort aimed at persuading lawyers to refer clients to its nationwide network of 2,000 brokers in exchange for a flat fee or a commission. The effort, also directed at accountants, is called the “Professionals Partner Program.”

Other companies believed to be getting in on the act include such brokerages as Merrill Lynch & Co. and Salomon Smith Barney Holdings Inc. and mutual-fund companies like Pittsburgh’s Federated Investors and Boston’s State Street Research & Management.

The money managers’ push to sell through lawyers mirrors one begun five years ago to sell products through accountants. Today, about 16% of the nearly 32,000 active licenses issued by the Certified Financial Planner Board of Standards are held by CPAs. Only 2.8% are held by lawyers.

The effort comes when money managers are finding it increasingly difficult to gather new assets in a mature and competitive U.S. market. While few in the legal profession– known for being cautious and conservative — are likely to embrace the idea of entering into formal agreements with outside money managers, those who do promise to bring considerable assets to the table. That’s because lawyers typically oversee the estates of several generations of wealthy clients.

“Lawyers are in the enviable position of having the trust of the their clients,” says Peter Eisenbrandt, national sales manager for the independent broker-dealer division at Federated, which is the nation’s seventh-largest mutual-fund company with $96 billion in assets under management. “If I see they are in a position to influence their clients’ investment decisions, I have no choice but to expose my company to them.”

too much work already

But persuading lawyers to start dishing out financial advice won’t be easy. Unlike accountants — often pushed into the financial advice business by a squeeze on audit and tax-preparation fees — most lawyers have more work than they know what to do with. Indeed, the roaring economy has created a demand for legal services that is almost unprecedented.

An even bigger obstacle, however, are legal and ethical considerations. In some states, Tennessee and Kentucky, for example, lawyers are not allowed to sell securities for a fee or commission. Even if they aren’t prohibited by law, for ethical reasons many lawyers are sure to take a dim view of the idea of selling securities, mutual funds and annuities to their clients.

“It sets off fireworks in my head,” says Don E. Green, a staff lawyer with the probate court in Sacramento, Calif. “The way I have always viewed an attorney-client relationship is that the client knows the attorney has no hidden agenda. That would certainly be called into question.”

Nowhere is the battle over whether lawyers should be encouraged to dabble in the financial advice business being played out more openly than in California, where a bill is pending that would make it illegal for lawyers to sell financial products or services to anyone with whom they have ever had an attorney-client relationship (InvestmentNews, April 27).

“This is a very difficult situation,” says Larry Doyle, chief legislative counsel for the State Bar of California, which supports the proposal “in theory,” but objects to the lifetime ban on the sale of financial products. “There have to be safeguards built into the process because the potential for abuse is enormous.”

Providing at least a glimmer of hope for money managers are law firms like Boston’s Choate Hall & Stewart, which last year formed a separate registered investment advisory subsidiary, Choate Investment Advisers. The group employs three full-time chartered financial analysts and manages more than $2 billion in trust assets for the law firm’s 1,200-plus clients. It collects an annual 1% fee for its services

eyes light up

“We want to expand beyond the trust business,” says Stephen P. Boyle, managing director of fiduciary and investment services at Choate Hall. “We want to do IRA work, private foundations and things of that nature.”

Other Boston law firms managing similarly large asset pools include Ropes & Gray, Hale & Dorr, Hemenway & Barnes, Bingham Dana, and Nutter McClennen.

Small and solo practitioners are following suit. Take Armond A. Dinverno, a tax and estate lawyer in Oak Brook, Ill. In 1986, Mr. Dinverno opened a fee-only investment management firm within his two-year-old law practice. Today, his firm, Dinverno & Foltz Financial Group, manages more than $60 million.

“When clients come to us we look at their whole financial picture,” says Mr. Dinverno, who is also a certified public accountant. “Much of that picture has to do with their investments and much of it has to do with their estate plans.”