London firm Kidd Rapinet has hived off its financial services division to set up a new company, Lewis Chambers.
Kidd Rapinet senior partner Andrew Lewis said the firm took the step because of Law Society over-regulation.
"The financial services industry is so over-regulated… it becomes impossible to perform a proper service to the client," he said.
He added that the Personal Investment Authority (PIA) was an easier forum through which to operate despite having its own tough regulatory regime.
Another disadvantage of being regulated by the Law Society was that solicitors were not allowed to share commission except under certain referral rules.
"Hiving off" meant firms could do this. It also meant that non-solicitors could be brought into partnership, Rapinet said.
The two bodies now had a profit sharing relationship, he said.
Mark Stokes, managing partner of two-partner Lewis Chambers, said the financial services department, which generated £200,000 commission and fees annually, "could not grow because of the restrictions".
He added: "It is a shame we've had to do what we've had to do. We would rather pay our fees to the Law Society as at least they are seen to listen while the PIA is very dictatorial."
One of the main problems was the multinational partnership issue, he said, adding that senior financial services employees who had over 15 years' experience wanted to be partners and not simply employees.
Farming out the practice also meant losing the goodwill attached to the Kidd Rapinet Financial Services name as a new name was adopted. Lewis Chambers was chosen because of its legal associations.
Lewis is pessimistic about the future of legal services under the Law Society regime and believes that more firms will follow their example and hive off.
"I suspect there will be less and less in-house financial services departments," he said. "Financial services can't take off among solicitors. It's too restrictive. The regulations of the PIA are onerous and more than adequate."
Kidd Rapinet refers work to Lewis Chambers through a profit-sharing agreement. The firm's two former financial services advisers are partners in Lewis Chambers.