The Law Society has urged solicitors not to follow the Solicitors Regulation Authority’s (SRA) new rules allowing them to make referrals to restricted advisers warning it could embroil them in mis-selling scandals.
It said it was taking the 'unprecedented step' to urge solicitors to ignore the SRA's 'liberalised' rules on recommending or referring financial advisers as it could expose solicitors to negligence claims.
The society said that solicitors could get ‘tangled up’ in mis-selling scandals if they advise clients to use financial advisers who may benefit from selling particular products.
Law Society chief executive Desmond Hudson said: ‘From the outset, the SRA’s proposals ran the risk of leaving the profession ill equipped to advise clients on which financial adviser to use for the product that they wish to procure, given a choice of a range of providers with differing interests and motivations.
‘The inevitable consequence will be that solicitors may become more open to negligence claims based on that recommendation or referral or that the profession as a whole becomes embroiled in the type of mis-selling scandal that has plagued the financial services industry in recent times.’
He said that the provision of independent advice had been one of the ‘fundamental tenets’ of the profession.
‘As such we would urge solicitors to disregard the liberalisation of the handbook in this area and continue to only recommend IFAs,’ he added.
‘On this issue, under the new rules, solicitors will not be penalised for exercising discretion. We urge them to use that discretion to only refer and recommend IFAs to clients to avoid the risk claims.’
The society also questioned the effectiveness of the SRA’s consolation on adviser referrals.
Hudson said: ‘All eyes will be on the SRA in January when it publishes the consultation responses on this issue. We hope that in the interests of legitimacy there is a clear expression of support for the SRA’s proposals in this area from stakeholders other than those in the financial services industry who stand to benefit from liberalisation.’
He said that if ‘significant informed opposition’ is shown in consultation responses, it would bring the legitimacy of the consultation process under ‘serious question.’
‘It is not sufficient to cite an apparent incompatibility with outcomes-focused regulation as an absolute rationale for diluting regulatory safeguards for both clients and solicitors.’
The Law Society is a trade body for solicitors. The SRA is part of the Law Society Group, though it acts independently in its work as a regulator.