Can a Real Estate Agent, CPA or Lawyer Raise Money From Clients?
On this page
Sometimes, but it is riskier than raising from friends. A client already trusts you as an adviser, and that trust is exactly what professional rules protect. The securities rules treat the client like any other investor, so Rule 506 still applies. On top of that, a real estate agent, CPA or attorney owes duties that can make the offer a conflict of interest unless it is disclosed and the client has a real, independent choice.
Does the securities law treat a client differently?
No. A client is an investor like any other: the offer must fit Rule 506(b) or 506(c), the investor must be accredited or, in 506(b), sophisticated and given the required disclosure, and you cannot generally solicit the public. A client relationship may count as a pre-existing substantive relationship (substantive relationships). The difference is your professional duty.
What are a real estate agent's limits?
An agent owes duties to a client in a purchase or sale, and state license law or brokerage rules may restrict taking a side deal with that client or selling interests that look like real estate investments. If a buyer client is looking at property you also plan to syndicate, you have a conflict. Disclose it, keep your agency separate and read your state's license law and your broker's policy. See working with brokers and whether you need a license.
What are a CPA's limits?
A CPA owes professional standards of independence, objectivity and disclosure of commissions and referral fees. Offering a client your own investment can compromise your ability to give objective tax advice about it. Many CPAs keep their client work and their sponsor business apart, and tell clients to take advice on the deal from someone else. See CPA referral fee rules.
What are a lawyer's limits?
A lawyer entering a business deal with a client is covered by the professional conduct rules. The ABA Model Rules, Rule 1.8(a), require terms that are fair and reasonable, written disclosure the client can understand, a chance to get independent legal advice and the client's informed written consent. Many states follow it. The lawyer should not act as the deal's lawyer for the client's side.
How do you give the client a real choice?
Disclose your role and interest in writing, say you cannot advise them on whether to invest, recommend independent advice, give the full offering documents and time, and make it clear that saying no will not affect your services. Avoid offering to a client who is dependent on you or in a weak position. Keep a written record of the process.
What about being paid?
Do not take a commission for raising money from clients unless you are a registered broker. A sponsor paid out of the deal's fees as the manager is different from a person paid for bringing in each investor. See paying capital raisers and whether a sponsor must register as an adviser.
Our take
Your clients are the people most likely to say yes, which is why this is the situation that most needs a clear process. If a client's trust in you as an adviser is the only reason they invest, you should probably not take the money.
Trade-offs and who this is not for
- The risk is mostly to your license and reputation, not only to the deal.
- Not for professionals who would keep advising the same client on the investment.
- Common mistake: offering the deal in the middle of a client engagement. Separate the two.
- Rules differ by state and profession. Check yours.
How DoorRaise fits in
DoorRaise helps sponsors raise equity for apartment buildings with 5+ units from friends and followers who already trust them, under Rule 506(b) or 506(c). We are software, legal document preparation, escrow coordination and verification services. We are not a law firm, broker-dealer, investment adviser, funding portal, bank or escrow agent, and we do not hold investor money: investors wire their money to escrow at Enterprise Bank & Trust, in the deal's name.
A deal page the client can read alone, with full disclosure and documents, lets them decide without a conversation in your office. Flat fees, never a percentage of the raise (see pricing). Create your free sponsor page.
FAQ
Can I invest my own client's money in my deal?
Only if the client invests as an investor, with full disclosure of your interest, independent advice offered and no pressure. Never invest their money without authority.
Do I need a license to raise money from clients?
Not for your own deal if you are an issuer and are not paid per investor, but check state rules and your own license.
Can I tell clients about the deal?
Under 506(b), only those you have a real relationship with and not by a broadcast. Under 506(c), you may advertise but must verify accredited status.
Should clients get a lawyer?
Yes. Independent legal advice is good practice and is required for lawyers' own clients in many cases.
Sources
- 17 CFR 230.506
- 17 CFR 230.502
- SEC: Guide to broker-dealer registration
- ABA Model Rules of Professional Conduct, Rule 1.8(a), business transactions with clients
This article is general information, not legal, tax or investment advice. Talk to a securities attorney before you market an offering. DoorRaise is not a law firm, broker-dealer, investment adviser or funding portal.