Financial services: Attorney disbarment

*by Johannes Fiala, Lawyer (Munich), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer (Univ. of Cooperative Education), Banker (www.fiala.de)
Lawyers who work in sales do not get a licence: The Federal Court of Justice has (judgement of 15.05.2006, Az. Anw(Z) 41/05) currently confirms that lawyers are not allowed to engage in the sale of financial products on a full-time or part-time basis.
Activity in private banking prevents admission to the bar: “Pursuant to § 7 No. 8 BRAO, admission to the bar is to be denied if the applicant engages in an activity that is incompatible with the profession of lawyer, in particular with his position as an independent organ of the administration of justice, or that may jeopardise confidence in his independence,” states the current ruling. the current judgement states. Independence and integrity of a lawyer as well as his decisive orientation towards the law and the interests of his clients can be endangered in particular in the case of a commercial character of the second profession; conflicts of interest are particularly obvious if a commercial profession offers the possibility to use information which originates from the legal advisory activity? The lawyer cannot serve two masters, on the one hand sales and on the other hand the client in his legal advice.
Prohibited activities in the financial sector: According to the case law of the Federal Supreme Court, activities of a lawyer in the insurance, financial services and brokerage sector are generally incompatible with the profession of lawyer (Senate decision of 14 June 1993 – AnwZ (B) 15/93, BRAK-Mitt. 1994, 43; Senate decision of 13 February 1995 – AnwZ (B) 71/94, NJW 1995, 2357; Senate decision of 21 July 1997 – AnwZ (B) 15/97, BRAK-Mitt. 1997, 253; Senate decision of 18. October 1999 – AnwZ (B) 97/98, BRAK-Mitt. 2000, 43; Senate decision of 13 October 2003 – AnwZ (B) 79/02, NJW 2004, 212 = BRAK-Mitt. 2004, 79).
No admission for inheritance managers, foundation managers, “Certified Estate Planner”: An admission (e.g. with employment as insurance or bank counsel) is out of the question, above all, if ?the lawyer in his second profession is involved with the acquisition or brokerage activity of the company in question himself? (cf. Senate decisions of 21 November 1994 – AnwZ (B) 44/94, NJW 1995, 1031 = BRAK-Mitt. 1995, 163, of 11 December 1995 – AnwZ (B) 32/95, NJW 1996, 2378 = BRAK-Mitt. 1996, 78 and of 11 October 2000 – AnwZ (B) 54/99, BRAK-Mitt. 2001, 90).
Withdrawal of licence for sales staff of company pension schemes? In a particularly precarious situation are (still?) approved ? in particular employed – lawyers involved in sales activities in the field of occupational pension consultancy ? for example, if they provide advice to employers on behalf of the pension fund. This is because bar associations usually advise employed lawyers that they are prohibited by Section 46 BRAO from advising their employer’s clients.
A case for the prosecution? For the freelance lawyer commissioned by the occupational pension scheme, the provision of advice to the employer is prohibited if he is brought to the sales meeting by the operator of the occupational pension scheme “uninvited or not mandated by the employer”: This is because in the case of simultaneous legal representation of the pension scheme and legal advice to the employer ? in the same matter, the occupational pension scheme ? he would come into a prohibited collision, because the lawyer is not allowed to act for ?the other side? at the same time.
The VSH specialist broker Ralf W. Barth (www.rwb-finanz.de) comments aptly: ‘Lawyers who recommend certain financial products often get into a prospectus liability through their advertising or sales activities, which the lawyers’ liability insurance does not cover. The violation of professional law can lead to the fact that also for the legal advice no VSH coverage exists, because of the forbidden mixture with sales activities, a knowing breach of duty?
Typical example of a U-Kasse: The lawyer accompanies the intermediary of a U-Kasse to the employer’s meeting, without a mandate from the employer, and also advises the employer that there can be no employer liability in the case of deferred compensation ? despite Zillmerisation plus U-Kassen administration costs, at the expense of the occupational pension contributions financed by the employees.
The (partial) invalidity of deferred compensation (cf. BAG Presiding Judge Dr. Reinecke in: Der Betrieb 2006, p. 555 ff.) as well as the scientific underpinning of Prof. Dr. Schwintowski’s statement ‘The choice of zillmerised pension fund tariffs violates § 1a para. 1 sentence 5 BetrAVG in terms of occupational pension law’ (VuR 2003, p. 32 ff. and BetrAV 2004, p. 242 ff.) are casually brushed aside. (VuR 2003, p. 327 et seq. and BetrAV 2004, p. 242 et seq.) are casually brushed aside.
The ?expert? active in the selling interest conceals naturally also, what the renowned ?working group for operational old age pension registered association? (aba)? in its magazine ?Betriebliche Altersversorgung? 2006 printed: ?Because the offence against the value equality leads to the inefficacy of the [Entgelt-]conversion agreement (§ 134 BGB, § 17 III p. 3 in conjunction with 1 II p. 3 BetrAVG) in the amount in which the remuneration to be converted was used for the administration fee of the provident fund. In any case, this leads to a claim of the employee for repayment of the amount used for the administrative costs on the grounds of unjust enrichment? The lawyer might be sure of his own liability for his legal sales talk, because it has nothing to do with the BGH’s stipulation ?on the safest way? of giving advice.
From the dream of ?holistic consulting as a solution from a single source? The BGH writes in its ruling: ‘Such legal advice to bank clients, which is given in the business interests of the bank, is incompatible with the profession of lawyer’. This means that the profession of lawyer is incompatible with any position that includes sales advice to clients. Because ?the legal advice of the bank customer ? cannot be separated from the business interest of the bank to win customers for the plant and service products of the division Private Banking ? After all, the lawyer’s recommendations ?directly serve the client advisor’s acquisition activities? even if no payment is made according to sales targets.
It is therefore detrimental to the lawyer’s profession that the lawyer’s activity enables the actual sales employee to ‘make recommendations in favour of the investment and service products offered by the bank’, and thus to promote the sale of these products. There is therefore an “integration into the sales department”. This perspective applies equally to cooperation with occupational pension schemes and insurance companies.
Lawyers who work in sales have their licence withdrawn: a notice to the professional chamber is sufficient and the licence is gone. The BGH formulates the reasoning as follows: “Such legal advice to the bank client by an employee of the bank, which cannot be separated from the business interest of the bank and is therefore not independent, but rather co-determined by an external economic interest, is – unlike, for example, the activity as an in-house lawyer in the legal department of the bank – not compatible with the professional image of the lawyer and his position as an independent body of the administration of justice; it also endangers the confidence of the public in the independence of the lawyer”. In other words, the ‘good reputation’ of the honorary professional may not be used as a special mark of confidence in sales.
This also affects lawyers who do not identify themselves as such in sales, as the BGH clarified. It is not always the rule that lawyers unsuspectingly out themselves as employees of company pension funds, insurers and banks, on their business cards as ‘corporate client advisors’ and the like.
Activity as a member of the management board of a financial services company: The character of the activity will not change even if the lawyer is active as a member of the management board ? (co-)responsibility for sales, especially sales control and management, does not change the character of the activity. The level in the hierarchy will not matter ? however, a withdrawal into the supervisory board without direct sales activity will be able to end the permanent conflict of interests.
Unprotected professional titles: Lawyer or chartered accountant (Switzerland). The title “lawyer” is not protected by law. Likewise, in Switzerland, anyone may call themselves an “auditor” (Wirtschaftsprüfer). (WP) ? the real WP�s are registered in the register of the Swiss Chamber of Trustees, the others can be trained bricklayers. An insurance broker commented on this with the words: ‘The sales lawyers can occasionally be recognised by the fact that they are not listed in the telephone directory and do not really run a law firm.’  

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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