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Independents can thrive despite SRA’s restricted referrals verdict
by Ian Muirhead on Dec 04, 2012 at 10:00
After months of consultation, the Solicitors Regulation Authority (SRA) has finally given its verdict over the question of referrals to advisers.
It has abandoned its commitment to independence, and will permit solicitors to refer to restricted advisers after the retail distribution review. Advisers who would now be deemed tied or multi-tied will therefore be allowed to gain business from the legal profession.
The SRA’s caveat is that solicitors’ clients need to be ‘in a position to make informed decisions about how to pursue the matter’. Solicitors will have to satisfy not only themselves but also their clients that any referral will be in their clients’ best interests. The solicitors’ regulator intends to issue guidance explaining the due diligence and record-keeping that will be required.
It has chosen to ignore the response to the consultation made by the Law Society, which warned that abandoning the commitment to independence could open up referrals to ‘providers with an agenda that is predicated on self-interest and tied arrangements rather than a transparent market-wide assessment’.
The double meaning of independence
The elephant in the room is that there are now two different meanings of the word ‘independent’. The dictionary definition, which will continue to be the meaning understood by consumers and solicitors alike, is that of being free from third-party influence.
The meaning the Financial Services Authority (FSA) is now seeking to persuade us to adopt attaches greater importance to the scope of the service offered than to impartiality. The regulator seems to have taken its cue from Humpty Dumpty: ‘When I use a word, it means exactly what I mean it to mean.’
In this situation, one can sympathise with the challenge the SRA faces in attempting to reconcile its own rulebook, which assumes the first meaning, with the FSA’s esoteric redefinition.
Among the beneficiaries of the relaxation of the SRA code of conduct will be those members of the Association of Private Client Investment Managers and Stockbrokers who, in addition to providing stockbroker services, provide multi-tied financial advice.
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