Maryland planner Martin A. Smith has done his studying and hopes to earn his CFP credentials soon. But already Smith has had a lesson that some CFPs never get: how to hire the right lawyer.
Smith's education began in September 2010, when his former employer, Ameriprise Financial Services, filed a petition against him in federal court, seeking to confirm an $82,000 award it had won in 2009 at a FINRA arbitration hearing. In its petition, Ameriprise claimed Smith was required to return that sum, which he had received as a signing bonus, or forgivable loan, when he began his employment in 2007.
Ameriprise claimed that Smith had left the job before fulfilling his obligations. Smith, now president of Wealthcare Financial Group in Bowie, Md., which offers fee-only retirement planning and portfolio services, denied that. He countered in his court papers that his former employer had misrepresented conditions and breached promises it had made when hiring him - specifically, by failing to provide him with an assistant.
In federal court, Smith initially represented himself and filed an objection asserting that Ameriprise had failed to seek the award confirmation within the one-year time frame stipulated by the Federal Arbitration Act. When the trial judge decided against him, Smith decided to appeal and set out to hire a lawyer to handle his arguments in the U.S. Court of Appeals.
Smith, who attended law school for one year before deciding he didn't want to practice, interviewed several lawyers, but many disappointed him; they seemed vague about their fees and about the tack they might take with his case. By contrast, Matthew Skipper, an associate at the Trunnell Law Firm in Crofton, Md., was straightforward and precise, and Smith hired him.
Both planners and the lawyers who represent them say the task of choosing counsel should never be taken lightly. It takes research, time, thoughtfulness and a dose of bravery, since some lawyers can run roughshod over even sophisticated prospective clients. For starters, a planner should discover what cases a prospective lawyer has handled previously - and their outcomes.
When advisors become a defendant for the first time, "many people become transfixed like a deer in the headlights," says Bill Singer, who defends financial planners regularly and is a partner at New York City law firm Herskovits PLLC. These planners often "open the envelope, find out they have been named as a defendant and crumble," Singer says.
FACTS OF LIFE
Planners threatened with a lawsuit need to learn some facts of life immediately, Singer says. First, "this is not going to get resolved overnight." Many cases drag on for two to five years. During this time, the planner should not become "distracted from his or her own business," Singer says. Even if the litigation is resolved favorably, a planner's practice could suffer fatally.
Also: "Don't hire the first attorney you speak to," Singer advises. Instead, he says, ask peers discreetly, do research online to find attorneys with applicable experience.
He warns against hiring a lawyer with too much experience for a small matter, or vice versa. Also, be specific. Often, planners facing a regulatory proceeding turn to a lawyer who has practiced securities law. But if a lawyer has no experience in the venue where the litigation could lead - say, an arbitration hearing or a federal courtroom - then steer clear.
Ethics rules require lawyers to tell a prospective client if they lack the applicable experience to handle a matter. Both Singer and Skipper say those rules don't always stop some lawyers from taking on cases they shouldn't.
Additionally, during early interviews, any lawyer should commit to treating preliminary information he or she is told as protected under rules governing attorney-client privilege.
Many planners get offers from their employers to pay for their legal representation. But advisors should understand that the employer may have a greater incentive to settle, in order to avoid long, expensive litigation, while the planner may want to avoid any settlements that require reporting the outcome to the CFP Board and other regulatory authorities. Singer recommends advisors ask employers up front if they will pay for expunging records and filing counterclaims.
A lawyer's price tag can be significant, so advisors should not be shy about asking for specifics up front. "You don't order food from a menu with no prices on it," Singer says. "Don't do so from a lawyer."
Although "it's almost impossible to tell in the early part of a case how much it will cost," Singer says, clients should expect a lawyer to give some outlines, with a retainer and ballpark estimates for best- and worst-case scenarios.
Advisors whose cases are headed for federal court should expect prospective lawyers to ask for heftier retainers. One reason is that federal judges often bar lawyers from withdrawing from a case, even if a client can no longer afford legal representation, so attorneys want to protect against that situation.
Cory Braddock, a CFP and an associate for the law firm of Snell & Wilmer in Phoenix, suggests that planners seeking counsel "should find someone who has experience in the kind of litigation they are facing." Braddock, who regularly represents planners, believes his own past helps establish trust with his clients. "I spent 10 years as a CFP and stockbroker," Braddock says. "I've actually walked in their shoes."
Planners should also be aware that some lawyers specialize in representing plaintiffs, while others work with defendants. Braddock, for example, usually represents CFPs as defendants.
Smith says he is happy that his search for a lawyer led him to Skipper, whom he values for his ability to speak "clearly and concisely." Skipper says the appeals court agreed to hear Smith's appeal in March, but Ameriprise and Smith negotiated a settlement before that proceeding took place. Under that deal, Skipper says, "both parties won."
Though the lawyer is bound by confidentiality provisions in the agreement, Skipper says Smith "was pleased" with the outcome. "Very, very pleased," echoes Smith.
Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.