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COMMONWEALTH OF PENNSYLVANIA

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204 Pa. Code Rule 5.8. Dealing in Investment Products: Prohibitions and Restrictions.

Rule 5.8. Dealing in Investment Products: Prohibitions and Restrictions.

 (a)  A lawyer shall not broker, offer to sell, sell, or place any investment product unless separately licensed to do so.

 (b)  A lawyer shall not recommend or offer an investment product to a client or any person with whom the lawyer has a fiduciary relationship, or invest funds belonging to such a person in an investment product, if the lawyer or a person related to the lawyer:

   (1)  has an interest in compensation paid or provided by a person other than the client or person with whom the lawyer has a fiduciary relationship; or

   (2)  has an ownership interest in the entity that sponsors, insures, underwrites, manages, or issues the investment product.

 (c)  For purposes of this Rule:

   (1)  the term ‘‘investment product’’ includes: an annuity contract; a life insurance contract; a commodity; a swap; an investment fund, including but not limited to a collective trust fund, a common trust fund, a real estate investment fund, and registered investment company; a security, whether or not the security is registered with any federal or state securities regulator; or an investment adviser’s, bank’s, trust company’s, insurance company’s, or other financial institution’s service as an investment manager or investment adviser;

   (2)  ‘‘person related to the lawyer’’ includes a spouse, child, grandchild, parent, grandparent or other relative or individual with whom the lawyer maintains a close familial relationship; and

   (3)  the term ‘‘ownership interest’’ does not include shares of an issuer that has registered the shares under federal securities laws, the issuer’s shares are traded on a securities exchange that is registered under federal securities laws, and the lawyer’s aggregate interest in shares of all classes is less than one percent of the issuer’s outstanding common shares.

Comment:

   (1) Paragraph (a) prohibits a lawyer from brokering, offering to sell, selling, or placing any investment product, as defined in paragraph (c)(1), unless separately licensed to do so. Licensing and registration requirements vary by state. Before offering or selling any investment product in relation to the provision of legal services, a lawyer must consult all applicable federal and state laws to determine eligibility, licensing and regulatory requirements. Paragraph (a) neither addresses the giving of investment advice nor is intended to supplant or otherwise affect federal and state laws that either require licensing and registration in order to give investment advice or exempt lawyers from their regulatory scheme.

   (2) Paragraph (b) prohibits investment situations that are fraught with a potential for a conflict of interest or that provide an opportunity for the lawyer to control or unduly influence the use or management of the funds throughout the course of the investment. Clients who place their trust in their lawyer and assume or expect that the lawyer will protect them from harm are likely to feel deceived if substantial sums of money are lost on investments pursued at the lawyer’s recommendation or prompting and the lawyer or a person related to the lawyer either receives compensation or a pecuniary benefit from a person other than the client or has an ownership interest in the entity that sponsors, insures, underwrites, manages, or issues the investment product, even when the reason for the loss is limited to unexpected market conditions. The prohibition of paragraph (b) is not imputed to other lawyers in the lawyer’s firm or those lawyers’ relatives.

   (3) This Rule applies to a lawyer under any circumstance—whether the lawyer is providing legal services, nonlegal services that are not distinct from legal services, or nonlegal services that are distinct from legal services. See Rule 5.7(e) for the meaning of the term ‘‘nonlegal services.’’ The prohibition of paragraph (b) is in addition to the restrictions imposed by Rules 1.7(a)(2), 1.8(a) and 5.7.

Source

   The provisions of this Rule 5.8 adopted December 30, 2014, effective in 60 days, 45 Pa.B. 279.



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