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IFAs question solicitors’ due diligence for restricted referrals

by Michelle Abrego on Nov 27, 2012 at 11:45

IFAs question solicitors’ due diligence for restricted referrals

Advisers have questioned the Solicitors Regulation Authority’s (SRA) proposal to allow referrals to restricted advisers, and for solicitors to conduct their own due diligence on advisers.

Following a consultation the SRA is set to tell its board on Wednesday 28 November that solicitors making referrals to only independent advisers is not in keeping with its ‘outcomes focused regulation'.

It will instead recommend that solicitors can refer to any type of adviser provided they have done due diligence on them and it has been discussed with the client.

Simon Webster managing director of Ashford-based Facts & Figures Chartered Financial Planners, questioned whether solicitors were in a position to carry out due diligence on advisers.

‘It begs the question, why would the SRA make it more complicated expecting firms to do that necessary due diligence before recommending an adviser?’

Gill Cardy, managing director of trade body the IFA Centre, said that the SRA could be expecting too much from solicitors by asking them to justify their referrals.

‘The whole point is that they’re [solicitors] highly qualified professionals in the law, not in financial services,’ she said. ‘They’re not authorised to assess and discuss client’s [financial] needs in the way financial advisers are and I don’t think they are in any position [to give the appropriate advice].’

Andrew Whiteley, managing director of Herefordshire and Cambridge -based Provisio, said despite the SRA’s recommendation, independent advisers would remain solicitors preferred option.

‘I don’t think [opening up to restricted advisers will] make any difference at all to the people we deal with.’

‘They’re [the SRA] expecting solicitors to make an informed decision. That’s what needs to be the upper most thought of anyone referring clients, that they’re making an informed decision that recommends the firm that best meets the requirement that the client might have.’

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9 comments so far. Why not have your say?

Glint Thrust via mobile

Nov 27, 2012 at 13:29

Most of the solicitors that I deal with think that it's pretty easy due diligence: small IFAs,who(they feel) are unlikely to survive as such,for long,post-RDR;thus leaving the only client protection and redress to FSCS(£55k maximum) or the £2bn capitalised FTSE firm who we love to hate.

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Mad Eyes

Nov 27, 2012 at 13:35

they need us more than we need them. Upward and onwards

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Nov 27, 2012 at 14:03

So let me ask the following question... What makes the financial adviser community qualified to make referals to solicitors, accountants or tax specialists? Do you have specialist knowledge? What due diligidence process have you gone through to make that suggestion to the client?

This is so typical of this area of the industry. All you see is a danger of losing a source of income, and you get up in arms. I've not heard one reason why a solicitor shouldn't be able to recommend to who ever they want.

If they happen to refer to a restricted adviser, the adviser then has the responsibility to tell the client of they can or can't advise on a particular thing. Same responsibility if a person walks in off of the street. This is just another professional connection you have to manage, and make sure the solicitor knows you are the best to go to.

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Ric Green

Nov 27, 2012 at 14:10

I am sure the solicitors are bright enough to recognise that that referring to a restricted advisers requires extra work, and referring to a whole of market advisers doesn't. From the handful of lawyers I know, I think that point alone will ensure that the referrals to IFAs won't stop anytime soon.

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Charles Rickards

Nov 27, 2012 at 14:27

If we want to be the first choice of solicitors, then we need to make sure that they see us as the only credible choice. It's all about relationships and trust. I have the freedom to choose who I refer clients to for other services which I do not provide. As long as the client is aware of why they are being referred to a particular third party and the referrer is confident the client will get the expected service, I can't see what the issue is.

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Stephen Ng

Nov 27, 2012 at 15:25

@Ric Green - Couldn't agree with you more!

@Charles Rickard - Perfect response.

The 'law of unintended consequences' may actually make solicitors think twice because those that care most about their clients and their own reputations will always do the right thing.

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Phil Castle

Nov 27, 2012 at 15:42

@Ric & Charles - agreed.

We don't pay or receive introducer fees to accountants or soliciors and reccomend a varioety of both based on our knowledge of who we think likely to best suit a clients needs and that is it. We invariably mention more than one of each, highlighting what we think they are good for and suggest they speak to more than one.

The same tends to work in the reverse too with accountants we know often suggesting looking at us and one or two otehr firms so it is the client who decides who is the best fit.

Were I a solicitor/accountant I'd probably suggest an adviser spoke to more than one adviser to see who is the best fit and that could be 3 IFAs, 3 restricted advisers or a mixture and then leave ti to the adviser to explain any restrictions.

I'd have preferred if the SRA had stuck with Independant only, but this is the result of the FSA muddying the waters of the English language where the opposite of restricted should be un-restricted and NOT Indpendant. Independant is more of a mindset than anything.

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LJ via mobile

Nov 27, 2012 at 15:44

@ DS. Absolutely! I am an independent and should a Solucitor wish to refer a new matter to myself or a restricted should be a choice of the client based on the recommendation of the introductory source! There have been a few unscrupulous solicitors and restricted advisers fee splitting, but this is not how most professionals work together!!!

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Glint Thrust via mobile

Nov 27, 2012 at 16:05

Phil and LJ.

Couldn't agree more.

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