The Arizona Supreme Court gave its blessing to Jeff Junior of Trajan Wealth, a registered investment advisor in Scottsdale, Ariz., to co-own an estate law firm, according to a recent announcement. Arizona recently eradicated its rule opposing nonlawyer ownership of law firms.
After years of Trajan Wealth referring clients to estate attorneys, the wealth management firm with nearly $700 million in assets under management can now keep the bulk of a client’s estate planning needs in-house.
“It's great to now have the ability to continue such an important aspect of clients' lives,” Junior said in a statement. “As the first company ever to be approved for this structure, I am confident in saying this will prove to be very beneficial to anyone preparing for their financial future.”
Junior co-owns Trajan Estate with estate attorney Kent Phelps, who said this partnership allows Trajan Estate to have a “unique value proposition” and scale using the “intellectual and financial capital of a non-attorney.”
The pair runs Arizona’s first alternative business structure, or “hybrid firm.” And Junior is the first nonlawyer to own a law firm in the state.
Trajan Wealth and Trajan Estate could not be reached for further comment.
Arizona’s decision to alter the American Bar Association’s Rule 5.4 occurred in August 2020 and is part of a contentious yet possibly growing trend to open law firm ownership, management and, in some instances, fee sharing to nonlawyers. The Southwestern state joined Utah and Washington, D.C., in reregulating legal services in an attempt to make these services more affordable to everyday Americans and help law firms find the most suitable business partners. Illinois, California and New York are also said to be considering similar rule changes.
Bill Singer, attorney and author of the BrokeandBroker.com blog, said Arizona’s decision challenges traditions and invites greater competition into the law firm market. Not only will wealth management firms be interested in placing bids, but so will others such as not-for-profits and large accounting firms.
For example, Deloitte, an accounting firm that also provides consulting and advisory services, contracts with New York law firm Epstein Becker and Green to provide labor and employment law services domestically, since the accounting firm itself is legally not able to. Deloitte provides workforce management services in 60 countries except the U.S., leaving a gap in services to customers with global businesses.
The rule changes in Utah, D.C. and Arizona give companies the means to find complementary law firms to help lower costs and retain top talent, but they also present a potential ethical issue.
“The lawyer may not be able to do what’s in the client’s best interest [if] it conflicts with the RIA’s recommendations,” Singer said.
Other conflicts of interests arise when a financial advisor or lawyer refers a client out of the practice: Are they referring the client to the best option or a profitable one? Aegis Frumento, a lawyer at Stern Tannenbaum & Bell, said he wonders how Trajan Estate's ownership structure influences the way referral fees are split between it and the wealth management firm. Utah and Arizona’s Supreme Court allow law firms to share their fees with a nonlawyer.
Frumento added that lawyers who are employees of wealth management firms such as wirehouses mainly serve the interests of the employer, though they may assist in strategizing for retail clients.
With wealth management firms and independent law firms able to partner together in three states, bar associations across the country are surveilling the changes to see if independent legal advice is still deliverable under nonlawyer ownership.
"When courts are looking at this they’re asking the question are these rules necessary to protect consumers or are these rules serving solely as restraints on the practice of law? So the latter is arguably driving up the cost of legal advice. Is there a real benefit in maintaining those restraints?" said Brian Hamburger, founder of MarketCounsel Consulting and the chief counsel of The Hamburger Law Firm. "Arizona found that there is no significant threat to consumers and they felt that they could [allow nonlawyer ownership] through alternative regulatory means."
Singer said other RIAs and financial services firms are sure to look at Trajan Wealth as a template for their own pursuits in acquiring legal services for clients.