Advisory Opinion No. 2017-17 Rhode Island Ethics Commission Advisory Opinion No. 2017-17 Approved: April 25, 2017 Re: Philip Overton QUESTION PRESENTED: The Petitioner, a member of the Westerly Town Council, a municipal elected position, requests an advisory opinion regarding whether the Code of Ethics prohibits him from participating in the Town Council’s discussions and decision-making relative to the selection of an investment advisor for the Town’s police retirement plan, given one applicant’s business association with the Petitioner’s employer, whereby the Petitioner is authorized to sell the applicant’s investment products on a commission basis. RESPONSE: It is the opinion of the Rhode Island Ethics Commission that the Petitioner, a member of the Westerly Town Council, a municipal elected position, is prohibited by the Code of Ethics from participating in the Town Council’s discussion and decision-making relative to the selection of an investment advisor for the Town’s police retirement plan, given the financial nexus between the Petitioner and one of the applicants for the position. The Petitioner is a member of the Westerly Town Council (“Town Council”). In his private capacity, he is employed as a financial planner with Prudential Financial (“Prudential”), a private entity providing life insurance, annuities, retirement-related services, mutual funds, investment management and other financial products and services. He represents that the Town of Westerly (“Town”) is currently reviewing applications for the position of investment advisor for the Town’s police retirement plan. One of the applicants, Transamerica Corporation (“Transamerica”), a private entity providing insurance and investment services, has an agreement with the Petitioner’s employer, Prudential, under which the Petitioner is authorized to sell Transamerica’s products to his clients on a commission basis. As a financial planner, the Petitioner uses commission-based planning for client portfolios having assets of less than Twenty-Five Thousand Dollars ($25,000), whereby he receives a commission based on the investment products he purchases for his clients. The Petitioner represents that Prudential has an agreement with Transamerica under which the Petitioner has the authority to sell Transamerica’s products to his clients. Although the Petitioner explains that, to date, he has never sold Transamerica products, he represents that he has the opportunity to do so at any time. The Petitioner explains that if he were to sell any of Transamerica’s products, Transamerica would pay Prudential a percentage based on the amount of the Petitioner’s sales, and Prudential would then pay a percentage of those proceeds to the Petitioner. Based upon the above representations, the Petitioner seeks advice as to whether he is required to recuse from participating in the Town Council’s discussions and decision-making relative to the selection of an investment advisor for the Town’s police retirement plan. Under the Code of Ethics, a public official may not participate in any matter in which he has an interest, financial or otherwise, that is in substantial conflict with the proper discharge of his duties or employment in the public interest. R.I. Gen. Laws § 36-14-5(a). A substantial conflict of interest exists if an official has reason to believe or expect that he, any person within his family, a business associate or an employer will derive a direct monetary gain or suffer a direct monetary loss by reason of his official activity. Section 36-14-7(a). The Code also prohibits a public official from using his public office or confidential information received through his public office to obtain financial gain for himself, his family, his business associate, or any person by which he is employed or whom he represents. Section 36-14-5(d). Finally, a public official must recuse himself from any matter in which his business associate appears before the municipal agency of which he is a member or by which he is employed. Section 36-14-5(f); Commission Regulation 36-14-5002(a)(2). A “business associate” is defined as an individual or business entity joined together with another person to achieve a common financial objective. Section 36-14-2(3), (7). The Commission has consistently required a public official to recuse himself from a matter if the official has an ongoing or anticipated business relationship with an individual or entity appearing before his public body. See A.O. 2016-45 (opining that a member of the Tiverton Planning Board is prohibited by the Code of Ethics from participating in the Planning Board’s discussions and voting relative to applications for subdivisions and land development projects in which her business associate appears as an expert witness for the applicant, given that they have worked together professionally in the past on projects and often refer work and clients to each other); A.O. 2003-23 (opining that a West Warwick Development Commission member may not participate in consideration of any matter impacting his prospective employer); A.O. 98-117 (concluding that an Exeter Town Councilor may not participate in a zoning matter where she has had, and will likely have again, an employment relationship with an attorney appearing before her on a zoning matter). Additionally, a public official must recuse from matters that would have a financial impact upon his business associate or employer. The Code of Ethics requires the Petitioner’s recusal until such time as no business relationship exists between the parties and there is no expectation of any business dealings between the parties in the near future. See A.O. 2004-11 (opining that a Town of Lincoln School Building Commission member, who also owned a carpentry business, was a business associate of any person or entity with which he was engaged as a subcontractor and that the business associate relationship existed while the services were provided and until such time as the petitioner was paid and no further subcontracting work was anticipated). In prior advisory opinions, the Commission has concluded that a public official is not a business associate of a third entity with which his employer has an independent business association, in the absence of an independent financial nexus between the public official and the third entity. For example, in Advisory Opinion 2002-52, the Commission opined that an East Providence City Council member who, in his private capacity, was employed as an associate attorney at a law firm, was not a business associate of one of his employer’s clients for whom he did not provide any legal services. There, the petitioner represented that he was a salaried employee, and his compensation was not based upon the firm’s billing of any particular client. Thus, the Commission concluded that, because the petitioner neither worked with the client nor was financially impacted by his firm’s representation of the client, the relationship between the petitioner and the client did not rise to the level of a business association as defined by section 36-14-2(3). Similarly, in Advisory Opinion 2001-15, the Commission opined that a Coventry Town Council member was not a business associate of a firm that was hired for a school construction project in Coventry, notwithstanding that his private employer was recently hired by that same firm to work on a construction project in another municipality. There, the petitioner was a salaried employee and there was no indication that he shared any common financial objective with that firm. Thus, in light of these factors, the Ethics Commission determined that the relationship between the petitioner and the firm did not rise to the level of a business association as that term is defined in section 36-14-2(3). See also A.O. 2011-36 (opining that a Providence City Plan Commission member was not a business associate of his tenant’s client absent an independent financial nexus between the petitioner and the individual client). Here, the Petitioner specifically represents that when utilizing commission-based planning, he receives a commission based on the investment products he purchases for his clients, thereby creating an independent financial nexus between the Petitioner and the company offering the investment product. Although the Petitioner states that he has never sold Transamerica’s products, his employer has an ongoing agreement with Transamerica which allows the Petitioner to sell Transamerica’s products and receive a commission. Accordingly, after considering all of the representations herein, and consistent with prior advisory opinions, it is the opinion of the Ethics Commission that a current business association exists between the Petitioner and Transamerica triggering the prohibitions of section 5(a) and (d). The Petitioner must recuse from participating in the Town Council’s discussions and decision-making relative to the selection of an investment advisor for the Town’s police retirement plan, given that Transamerica is one of the applicants. Notice of recusal must be filed with the Ethics Commission and the Westerly Town Council pursuant to section 36-14-6. This Advisory Opinion is strictly limited to the facts stated herein and relates only to the application of the Rhode Island Code of Ethics. Under the Code of Ethics, advisory opinions are based on the representations made by, or on behalf of, a public official or employee and are not adversarial or investigative proceedings. Finally, this Commission offers no opinion on the effect that any other statute, regulation, ordinance, constitutional provision, charter provision, or canon of professional ethics may have on this situation. Code Citations: § 36-14-2 § 36-14-5(a) § 36-14-5(d) § 36-14-5(f) § 36-14-6 § 36-14-7(a) Commission Regulation 36-14-5002 Related Advisory Opinions: A.O. 2016-45 A.O. 2011-36 A.O. 2004-11 A.O. 2003-23 A.O. 2002-52 A.O. 2001-15 A.O. 98-117 Keywords: Business Associate Private Employment