Asking Your Attorney About “Wise” Investments

Attorneys have a reputation for “killing” more deals than they enable. In my experience this is a true statement: Several clients make haphazard investment decisions, such as signing contracts with “silent partners,” getting involved with high risk investments (my least-favorite: forwarding money for an independent film), or getting their feet wet with a new sure-thing-get-rich-quick scheme (i.e. flipping a home or entry into the rental real estate market). Several attorneys can share horror stories of clients break their backs and banks on these ventures.

But the question that should arise is often overlooked by the client: Does the attorney actually have any qualifications or experience to condone or dismiss the investment cost?

By their nature, most lawyers are good with contracts. We draft them, review them, revise them, and haggle over them with other lawyers. Thank you, your bill is in the mail. But who are we to look at the actual dollar amounts or opportunity costs of a deal? Is an attorney with minimal personal experience in rental real estate qualified to question a price point with a client who rents real estate for a living? How can a lawyer who primarily represents restaurants when they don’t comply with labor laws confidently tell them they are selling at an unreasonable price?

I am a Certified Financial Planner ®, and feel qualified to advise as to certain stock market investments, annuities, life insurance, options, commodities, and the like. I can convey the suitability of these investments, their value, and the general nature of how they function.

But when a client approaches me with purchasing or selling certain existing businesses, my expertise may be limited to the contract: Is this deal “on the paper” or paid up front? Are you the equity partner or the sweat laborer, and what are your safeguards? (Hint: There is always someone else with the idea who claims they will do the work; then you provide the money as promised, and they sleep late instead of actually working). Whether the client can turn a fast food franchise from an operating loss to a net gain is beyond my realm of expertise. I cannot tell you with certainty whether that abandoned building in the up-and-coming neighborhood is the deal of a lifetime. I would hope that other attorneys are as honest as to their own limitations, but we (like so many other humans) are people pleasers and want you to think we have the best opinion as to anything and everything. We don’t, and don’t expect us to.

I suppose the moral of the story is to typically trust the attorney’s contractual terms and structure of the investment, but feel free to go with your instinct on price and investment risk. The letters “Esq.” are not code for “MBA” or “CFA,” so stick with your gut on the value of the deal and let your lawyer hammer out the terms accordingly.

Q FOR U: When was the last time you asked your attorney’s opinion about an investment opportunity and was greeted by a pregnant pause or stutter?

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