Interviews: Thomas L. McKenzie, Attorney at Law
A Gag Order in California?
Thomas L. McKenzie
Attorney at Law
In response to an invitation for newsworthy items I issued in my ADL Digest last week, California attorney Thomas McKenzie wrote, saying, "A bill has been introduced into the California State Legislature which would (among other things and under certain circumstances), criminalize the giving of advice regarding the use of financial products in long-term care planning. As the bill is currently written, it could arguably make it a crime for the majority of California insurance agents to sell certain products which are used for long-term care planning purposes. I represent a number of attorneys who are fighting certain provisions of this bill." I asked him to tell me about his concerns. - Mr. LTC
Mr. LTC: First, tell us something about your practice.
Thomas McKenzie (TK):
I practice estate planning and elder law in Orange County.
Now - you're concerned about a bill that was introduced recently in the California Assembly, right?
Yes, bill AB2107, introduced by Assembly member Jack Scott and sponsored by California Advocates for Nursing Home Reform (CANHR).
How about some background on this bill.
Attorneys have been able to provide financial planning services for their clients in California for over twenty years. We have very strict requirements: we have to disclose all actual and reasonably foreseeable conflicts of interest, commissions, everything. We are just about the only persons who have to disclose those types of things to clients. Most insurance agents don't have to disclose anything like that. In 1998, a bill, AB 1716, was sponsored by (CANHR), that would have prohibited attorneys from providing financial services for their clients. We fought that bill, and instead of becoming outright prohibition, it became a disclosure bill. We had no problem with that, and in fact, I wrote portions of that bill. That bill was vetoed by Governor Wilson. The next year, another bill was introduced as a prohibitive bill, it was transformed into a disclosure bill, and that bill became law as of this year. CANHR was not happy with that, and again sponsored a bill this year.
What's the problem with this bill?
They have a provision that says, "Only a licensed life agent who has a National Association of Securities Dealers (NASD) series seven license - that's a stockbroker - and who is a Certified Financial Planner or a Certified Financial Analyst - and here's the key word - may advise an elder or an elder's agent to purchase financial products for long-term care planning with the proceeds of any stock, bond, IRA, CD, mutual fund." It makes it a criminal offense to sell annuities to clients. The Judiciary Committee was not at all approving of that provision. There hasn't been any documented evidence in California of attorney abuse. Basically what that does is it criminalizes the giving of advice by anyone who does not fit within the category of persons who are described. This narrow class of persons does not include elder law attorneys, so under this bill, all elder law attorneys in California would be committing a felony if they advised their own clients on the purchase of financial products for long-term care planning purposes.
What's the motive?
Insurance agents who specialize in the sale of annuities for MediCal planning purposes may want to see attorneys have a problem with this, because we're a lot more competent than they are, on the whole. Let's face it, when a client comes to us, we can offer them any option, not just an annuity. The only persons who I can think of who would want to get rid of us would be them, but remember, this provision doesn't just affect attorneys, it affects all insurance agents who aren't in that category, and that is the vast majority, by the way, of insurance agents in California, even those agents who are certified to sell long term care insurance by the State are not all three of those things - you have to be all three: a licensed life agent, a series seven licensed broker, and a CFP or a CFA.
What's CANHR's apparently strong interest?
I've actually worked with that organization, and supposedly they heard of one case where an attorney abused a client. Now, we really don't know if that was a legitimate case, because nothing ever came of it. There was never any action by the State Bar of California on it. Through all of our negotiations through the last three years, we have consistently have asked - even in the office of the Assembly member who introduced this bill - why they were doing this, and they admitted to us that they had no cases. They said they didn't have any cases because people weren't reporting them.
Is there anything that you think is good about this bill?
It raises the standard of care on the part of insurance agents who sell long-term care products to elders; I like that. The higher a duty of care someone has, the more liable they are if they cheat somebody. They also have provisions for certain disclosures in the case of MediCal products.
Does it make you think about a close partnership with someone who does fall within the narrow confines of this elite group now, and have meetings with two advisors for the client, not just yourself?
If this provision remains in the bill, it would raise the cost to the client, because if we had to set up other meetings with other professionals every time - and this would be at the first meeting and maybe the second. And if I wanted to refer them to somebody else, how would I do it? I couldn't tell them what I was advising them to get information about.
If you can't serve your client who trusts you, and that client goes somewhere else for advice.
You know, you just hit something totally on the head that we've been arguing for three years now. If they make it so that attorneys can not advise their clients, they're going to force people into the hands of people who are much less regulated. This class of persons who they have listed here - in the judiciary committee, one of the committee members said, "I really think this is a violation of the first amendment." You've heard of the Granny Goes to Jail and the Granny's Lawyer Goes to Jail laws, right? The Granny's Lawyer Goes to Jail law was arguably and I think obviously unconstitutional because it criminalized the giving of legal advice. This is exactly the same thing; it says not only can somebody not sell a product, somebody can't even advise a client on the purchase of a product. That is criminalizing legal advice.
What about the definitions of who can legally advice on these questions?
If you look at the series seven license - and I have one, by the way - the curriculum for that does not in any way discuss MediCal planning or long-term care planning. Now - a CFP: I don't have the designation but I've read every book in the curriculum. They do not mention anything about long-term care planning through the use of annuities or MediCal planning. So they're really off base here. I can see that what they're trying to do is to raise the bar here, saying that somebody who does this should have a greater level of expertise. But whether or not this would provide that greater level of expertise is debatable.
What are the penalties under this bill?
The penalties seem to be pretty heavy: "partial imprisonment in county jail not to exceed one year or in a state prison for two, three, or four years."
How would this bill be detrimental to the people who use the services of the broad group of professionals who don't fall into the defined category of allowable advisors?
I'll give you an example of a detriment. I have client who comes into me; her husband's in a nursing home. Let's say I know of four options that may be helpful to them. Under this law, I can not discuss one or more of them because it would be a violation of the law. Does that serve the client? And it may be the best one. The best thing may be for her to get an annuity. Under this law, I cannot tell her what I think the best thing for her to do is. I can only recommend other procedures, which may be much more expensive, and not as beneficial.
What is the most important idea you'd ask people to keep in mind about this bill and the problems it seeks to solve?
There are serious problems in this area with regard to the abuse of senior citizens, the sale of financial and insurance products for long term care insurance purposes, and we definitely need some sort of legislative response to this abuse, but it has to be a reasonable response aimed at bad conduct as opposed to just trying to define who can do what. No honest practitioner has any problem with that: calling for disclosure, calling for tough penalties for abuse. No problem. But trying to define who can say what to whom is certainly not the answer.