Estate Planning, Probate & Elder Law Attorneys

» More on the Referral Problem -- ADR

I spoke yesterday about the potential conflict of interest that arises when a third party (like a financial planner or accountant) refers a lot of business to an estate planner. A similar, but perhaps more serious, problem arises in the context of alternative dispute resolution (ADR) and referrals.

More and more companies make their employees and/or customers sign documents stating that disputes will be settled through the ADR process. That's fair on its face, but as a practical matter, I have some questions about how this works. There are only so many ADR professionals out there -- how is the person who will handle the mediation and/or arbitration chosen? If the person is chosen by the company, then we've got a problem -- if I'm referring 100 cases a year to Bob's ADR Shop, aren't I going to be monitoring closely the outcome of those cases? And aren't I going to hire someone else if I find that Bob's ADR Shop isn't favoring my company as much as I'd like?

Carried to its logical extreme, you get situations like the one detailed in this article (thanks, Tim), about the National Arbitration Forum

»  Post-Retirement Job Hunting
Get ready to jump into a new career, but be prepared to deal with some mistaken notions about older workers.

» How to Start a Virtual Assistant Business
Expert VA Lyn Toomey offers her insight on what to expect and how to find help in the virtual world.

» Déjà Vu Skies
Recent airline troubles don't signal the end of the industry, just a return to its past. What to expect next in the cycle.

» Conflicts of Interest and Referrals

Probably the two biggest areas for potential conflicts of interest in estate planning are:

1. Where the estate planner represents husband and wife (I discussed this here); and

2. Where the estate planner represents multiple generations of the same family (I discussed this here).

A third area of potential conflict involves referrals. Let's say that I as an attorney receive a fair amount of business from a financial planner with Firm X. Firm X refers me a new client. To whom do I owe a duty: the client, or Firm X?

The answer should be simple -- I owe the duty to the client. I spell this out clearly in my engagement letter to the client; I also talk to the financial planner about it, to make sure he or she understands who I represent.

In most cases, there's absolutely no problem, but a problem can arise if the financial planner wants me to benefit Firm X in some way, particularly if the financial planner wants Firm X to act as a fiduciary. In that case, I discuss the issue with the client, and present the client with the pros and cons of having a corporate fiduciary (and of having Firm X in particular). The client makes the final call, of course.

What happens if Firm X wants me to do a "hard sell," and convince the client that Firm X needs to be the fiduciary. At that point, I tell the client what Firm X is trying to do, and try to make it clear yet again to whom I owe my duty. If that means no more referrals from the financial planner, so be it. This MUST be the approach that an ethical estate planning attorney takes.