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IFAs question solicitors’ due diligence for restricted referrals

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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.’

Iain Muirhead, chairman of solicitor and IFA trade body Sifa, said there was a silver lining to the SRA’s decision in that solicitors must justify their referrals as a compliance requirement, which would benefit independent firms.

‘If there is a saving grace in the proposal it is that justifying client referrals is to become a compliance requirement, which will enable independent advisers to promote the merits of independence in the true sense of the word—freedom from third party influence,’ he said.

‘It is to be hoped that even at this late stage the SRA board might draw back from the brink of a potentially unfortunate decision.’

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