Mason says Cabana is now onboarding $5 million to $7 million a week and about 70% to 80% is coming from other advisors using its portfolios. Though much of the growth is on the institutional side, he says he wants to stay close to the firm’s roots of working one on one with clients to keep the human touch.
Law And Finance: Do They Mix?
The arrangements for law firms and advisors mixed together are often “chockfull” of ethical minefields, says a 2012 American Bar Assocation presentation written by Jay Adkisson and Richard LeVine.
“With a few exceptions,” said the paper, “the attorney’s most useful tool in avoiding these mines will be the trifecta of (1) written disclosure of potential conflicts, (2) advice to seek independent counsel, and (3) written waiver by the client. Easily said; but some attorneys may find it unpalatable to disclose their side-commissions to their clientele.”
Financial services and law can be strange bedfellows with differing cultures. Lawyers are held to extremely high ethical standards. They can be disbarred for many a reason, while financial advisors very often tread water in more nebulous ethical terrain based on which laws they use as legal umbrellas.
To Chadd Mason, the idea was fairly obvious: As a lawyer, he could step into financial services already meeting a fiduciary standard of care because the legal profession is so exacting, and thus he already had a leg up on the brokerage world.
Indeed, there is a huge incentive to sell products such as insurance and other financial products to use as part of estate plans, something lawyers would likely be tempted to do since they are so intimately involved with estate planning in the first place and likely have a special window into a family’s soul—who is getting what inheritance, who will need insurance as compensation for being cut out of the family business, etc. The American Bar Association said that there is incredible incentive for lawyers to become a one-stop shop for inheritors and divorcées needing financial planning help.
But there are extra challenges to running a law practice with advisory services, too. One is the need for total transparency. Lawyers acting as investment advisors at the same time must maintain confidentiality; they must be very careful to tell clients when they are wearing their advisor hats and when they are wearing their legal hats. The lawyer must tell the clients that their asset management arm will benefit financially from the way the funds are placed. The lawyer must also tell the client that he or she is free to invest elsewhere and cannot pressure the client to invest with the asset management firm. (Cabana has hired an ex-Finra attorney as a compliance officer, Mason says.)
There are other changing dynamics in play as well. One of those is the eroded trust in banks, which used to be the place people took their estate planning money, says Charles Lowenhaupt, chief of the storied St. Louis law firm Lowenhaupt & Chasnoff, started by his grandfather 110 years ago.
“Thirty years ago, a law firm would have sent a client off to J.P. Morgan or one of these places,” says Lowenhaupt. “Today, ultra-high-net-worth clients, the ones with $100 million, to $5 billion, they don’t trust the banks anymore, right or wrong. They are unwilling to use the banks in the way people used to use them. So part of the reason you see the accounting firms and the law firms going into this is that the bank trust companies have been disappointing. There is the sense that they are selling product.”