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Lawyers urged to only recommend independent financial advisers

The Law Society has warned solicitors in England and Wales not to refer the public to financial advisers who are not independent.


by Michelle McGagh on Jan 03, 2013 at 09:00

Lawyers urged to only recommend independent financial advisers

The Law Society has warned solicitors in England and Wales not to refer the public to financial advisers who are not independent.

The lawyers' trade body fears legal professionals could open themselves to claims of negligence by clients if they respond to a relaxation in the rules by their watchdog, the Solicitors Regulation Authority (SRA).

The SRA previously insisted that solicitors should only refer their customers to independent financial advisers, when they were in need of professional financial advice, for example on pension or tax planning.

However, the SRA recently changed its mind arguing many solicitors did not understand the difference between 'independent' and 'restricted' advisers, a new distinction just introduced by the Financial Services Authority. The trend for many financial advisers to call themselves 'wealth managers' has added to the confusion over the status of different financial advisory firms, it believes.

It has now told solicitors they can pass on clients to independent and restricted advisers.

The Law Society says the SRA is making a big mistake. In a statement, it said: ‘The Law Society has taken the unprecedented step of urging the profession not to follow the SRA’s new rules on recommending financial advisers to clients, warning that it could expose solicitors to negligence claims…We urge [solicitors] to only recommend independent financial advisers (IFAs) to clients.’

It fears solicitors could get tangled up in mis-selling scandals if they advise clients to use finanical advisers who may benefit from selling particular products.

'The provision of independent financial advice has historically been one of the fundamental tenets of the profession. As such we would urge solicitors to disregard the liberalisation of the Handbook [the solicitors' set of rules] in this area and continue to only recommend IFAs,' it added in its statement.

Under the 'retail distribution review' (RDR) reforms that took effect on 1 January, all financial advisers are banned from receiving commission from companies whose products they recommend. Instead, they must set a charge for their advice paid directly by their customers, either by cheque or by taking the fee from their savings. They must also pass a higher level qualification to practise as an adviser.

In addition, advisers can only describe themselves as 'independent' if they offer advice on all financial products. Previously, for example, many IFAs did not cover investment trusts or exchanged traded funds (ETFs) because unlike unit trusts or pensions, these investment plans did not pay them commission. With the new system of adviser charging independent advisers should offer advice on all investment products.

However, it is possible for advisers to be 'restricted' and non-independent and claim to offer 'whole of market' coverage within their specialist areas.

For more information on these important reforms read our 'guide to the RDR revolution'.
Our Adviser Finder tool details firms of professional financial advisers.

11 comments so far. Why not have your say?


Jan 03, 2013 at 09:41

Seems perfectly sensible to me...

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Jan 03, 2013 at 11:21

Another failure to understand the differences between 'restricted' and 'tied'. If a client wants an overall financial planning exercise, 'independent' every time, but for specialist advice then a 'restricted' adviser with deeper expertise in the relevant area than a 'GP' financial planner may well be more appropriate.

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Jan 03, 2013 at 14:06

So, if one of their clients wants a portfolio of domestic and international individual equitiesand corporate bonds - can they send the client to an independent advisor who is not a member of the stock exchange for that advice?

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damian davies via mobile

Jan 03, 2013 at 15:58

Festinalente - the solicitor is NEVER going to make a decision like that, that's up to the adviser.

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Jan 03, 2013 at 16:14

Sorry, I'm not following. Do you mean the solicitor won't make a decision on which kind of adviser he recommends- i.e. independent vs, restricted? Isn't the Law Society saying he shouldn't have a choice or did I mis-read that?

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Scott Gallacher

Jan 04, 2013 at 08:30

Festinalente the point is: -

How would the solicitor know that the client wanted a portfolio of international equities and corporate bonds?

Is the solicitor certain that the client will never complain in the future if the 'restricted' advisers products turn out to be unsatificatory?

Even if the client wanted (and was best served by) international equities / corporate bonds IFA could offer that by either referring the client to a stockbroker, Discretionary Fund Manager or selecting appropriate funds.

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Daniel Elkington

Jan 04, 2013 at 15:56

The main argument for going for the restricted route was that limiting solicitors to IFA's was reducing client choice.

This is a red herring - Only IFA's choose to research the whole of the relevant marketplace for the client - restricted advisers cannot. By using a restricted adviser a client has already restricted the marketplace they are accessing.

Additionally and most damning is the fact that now solicitors can refer clients to bank advisers - single tied advisers are now wrapped up in the 'restricted' definition too - like SJP calling themselves wealth managers when 9/10 times they bung their clients into their own funds.

Methinks the SRA hasn't actually understood the point of this exercise.

Additionally the original SRA guidelines were for 'independent' intermediaries. The FSA has re-defined what it considers to be an independent adviser (intermediary) in financial services. The SRA, in this decision, is effectively informing the FSA they disagree with their definition. Two regulators go to war?

Finally out of the 52 respondents a significant majority (over half) of respondents to the consultation paper voted that the SRA should adopt the FSA's new definition of independent. Because the SRA's preference was for the selected option it was chosen. This isn't even democratic. That's like the nation voting 370 seats for Labour next time, but because the Tories are already there then they might as well stay.

Letter to the MP being drafted...

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Jan 10, 2013 at 15:24

But if a firm was Independent pre-RDR but is now Restricted and is doing exactly whaty it did before......???? Also, some firms will not look at retail products, for example an adviser might only wish to consider an insituitional type investment which is more favourable for the client than a retail one. He act in the better interests of the client but cannot call himself independent only because he uses non-retail products ??


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Anonymous 1 needed this 'off the record'

Jan 10, 2013 at 16:41

My main worry is that the client and solicitor is unlikely to have an understanding of what the difference is between the different types of adviser.

The IFA is the gold standard - the client is more likely to get a better service with an IFA as the IFA has tens of thousands of options for a client. Everything a restricted adviser can offer is available to the IFA, if it is appropriate.

This is tantamount to asking the solicitor to determine which product is most suitable and then look at which adviser can advise on that product the best.

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Jan 10, 2013 at 17:43

"tens of thousands of options" - Superman has arrived.

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GM Baker

Jan 25, 2013 at 22:46

So glad the Law Society in England took charge. If only we could get a push towards independent financial advice here int he states. HAHAHAHA I can dream.

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