With the Legal Services Act, which will come into force in mid-2007, the issue of legal advice by financial service providers will take on a new significance.
Today, lawyers who do their job rather badly than well are usually called shysters, whereas originally this term was only used to describe people who sold legal advice (for example in the farthest corners of pubs) without having the necessary qualifications and licences. That the designation exists at all is a clear indication that there must have been a considerable number of these “sideline lawyers” at the time. However, it is probably also due to the fact that the – admitted – lawyers have at all times massively and with all means resisted such presumptions. And they have indeed succeeded extraordinarily well. The general public’s understanding of the law is still based on the assumption that non-lawyers are never allowed to provide legal information, although this is by no means the case. Even the Lübeck-based bancassurance provider Dr. Klein & Co. AG, which won a case before the Hamburg Higher Regional Court that dealt with precisely this issue (see box), seems to have thought until the very end that only lawyers are allowed to provide legal advice. In a press release entitled “Dr. Klein wins right to advice”, the company explains: “Until now, only lawyers were allowed to provide legal advice to private individuals – but not credit brokers.” However, this is not entirely consistent with the case law that has been in place for some time. As early as the 1990s, the Federal Constitutional Court for the first time created much more comprehensive possibilities for legal advice – also for financial service providers. The only question is: How much legal advice is the financial services provider allowed to give? Background: The Legal Advice Act essentially pursues two purposes: firstly, the protection of consumers and, secondly, the promotion and safeguarding of the smooth administration of justice by keeping professionally unsuitable and unreliable persons away from the handling of legal matters for others. Accordingly, the Federal Constitutional Court has deduced that legal advice is only prohibited if “in its core and main focus” a legal service is provided, e.g. advice or representation. And this means that numerous activities have long since ceased to be the exclusive preserve of lawyers. A third protective purpose of the Legal Advice Act – the so-called preservation of an efficient professional group (lawyers and legal advisors) – has decreased in importance. However, due to the constitutional objective of a “state governed by the rule of law” under Articles 19 IV, 20, 103 of the Basic Law, legal services cannot be completely opened up to everyone. Incidentally, such a restriction is not found in other European constitutions. Incidentally, the Federal Court of Justice (BGH) interprets the Legal Advice Act much more broadly by focusing on the question of whether a client “expressly wishes or recognisably expects a special legal examination”. The answer to this question depends, on the one hand, on the person doing the counselling and how qualified he or she is. On the other hand, it can be decided on the basis of “customs typical of the trade” or “objective standards of the transaction in question”, as the lawyers put it. Thereafter, courts could in fact still override the will of the parties to a service contract and summarily classify some services as prohibited. In such cases, it then depends on the content of the order and the “war chest”, because in case of doubt, constitutional law will speak in favour of freedom, i.e. in favour of the fact that the prohibition of a legal service is to be interpreted very narrowly and therefore no longer applies. Anyone who wants to offer such services should at least be prepared to have to fight through “his right” in case of doubt all the way to the constitutional court. Since the pecuniary loss liability policies of financial service providers and management consultants still do not cover legal and tax advice, it is naturally obvious to delegate such matters to a legal adviser, a tax consultant or a lawyer as a cooperation partner. Incidentally, since mid-2005, such cooperation may also be made public quite openly. For the financial service provider, no competitive situation arises here, because in principle neither lawyers nor tax advisors may provide financial services for clients in return for commissions. Legal services for all With the new Legal Services Act (RDG) from 1 July 2007, this situation will once again change considerably. If the legal service is not the focus of the offer, a financial service provider will in future be able to provide virtually any legal advice. The new law gives numerous examples, such as dispute resolution, grant advice and the execution of wills. Simple legal services will then even be allowed to anyone. An example would be the assertion of liability claims by a motor vehicle repair shop. Everyone should then also be allowed to assist in the termination and conclusion of contracts, for example the assistance of an energy consultant in the termination and conclusion of a new energy supply contract. All in all, this will be possible in future as a so-called “ancillary service”, thus enabling more “services from a single source”. Legal advice as a typical ancillary service will thus also be possible for an insolvency or reorganisation consultant with regard to the insolvency code, just as it will be for an architect in questions of building law. In the financial services sector, a credit institution will also be able to advise its clients with regard to asset or company succession, and an inheritance mediator will be able to act in the judicial application for a certificate of inheritance. It will then be sufficient as a precondition that the legal services are part of the professional profile or the contractually assumed duties of the legal advisor. According to the Federal Constitutional Court, such activities are already partly permitted to everyone. On the other hand, the RDG takes up the line of the BGH in that such examinations are to be prohibited in which an individual point requires an in-depth legal examination. This opens up a legally uncertain and undefined area on which new case law has yet to develop. The economically more significant risk lies with the consumer and the trader precisely where damage caused by negligence is not insured or is not insurable. The only way out is teamwork or cooperation, for example between lawyers and financial service providers.
(FONDS professionell 4/2006, 188)
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Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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