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Pressure mounts on SRA for U-turn on referrals

by Michelle Abrego on Dec 04, 2012 at 10:00

Pressure mounts on SRA for U-turn on referrals

The Solicitors Regulation Authority (SRA) has come under mounting pressure from advisers and lawyers to reverse its decision to allow solicitors to refer to restricted advisers.

Trade body the IFA Centre, which represents only independent advisers, is considering applying for a judicial review of the process, questioning the SRA’s understanding of the issue, its research and cost-benefit analysis.

In July the SRA launched a consultation on solicitor referrals in the light of the Financial Services Authority’s changes to the definition of independence. The three options it proposed were:

  • maintain the current rules that only independent advisers can receive referrals;
  • scrap the independent requirement altogether;
  • clients choose what type of adviser they want, having discussed it with their solicitor.

After the SRA approved the third option last week, the Law Society, a trade body for solicitors, published a statement to its members urging them to ignore the new rule, warning restricted referrals could embroil them in mis-selling scandals.

Law Society chief executive Desmond Hudson questioned the outcome of the consultation, given that 26 responses had backed independent referrals, with only 22 supporting the third option.

‘We were in the [independent] camp. We don’t think the change is right and we believe the majority of the consultation responses they received said the same,’ said Hudson. ‘If that is right, it does raise questions about the completeness, the thoroughness and the rigour of the consultation process.’

The responses will be published in full in January 2013.

Hudson said if they showed the SRA to have been partial to one outcome, it would risk losing solicitors’ confidence. He said the Law Society might publish its own guidelines on the issue.

IFA Centre managing director Gill Cardy (pictured) said: ‘The basis on which the decision was made seems to me to offer sufficient grounds for challenge, but I will want to take independent legal advice before making a final decision.’

A spokesman from the SRA said: ‘The Law Society is the [solicitors] representative body and they are in their rights to advise their members they can carry on referring to IFAs as long as it’s in the best interest of the client to do so.’

Neil Bailey, director of Northamptonshire-based Fortitude Financial Planning, said he was disappointed by the decision. ‘There’s a risk of very poor outcomes for clients,’ he said.

32 comments so far. Why not have your say?

Simon Webster1

Dec 04, 2012 at 10:39

This one is a bit rich coming so soon after the major fine on a lawyer for referring to SJP...

Meanwhile SJP is still telling its advisers that commission continues at SJP post RDR.

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Gas boy

Dec 04, 2012 at 10:41

Am puzzled by this debate. Aren't the standards of advice expected the same post RDR, irrespective of the label worn by the adviser? Especially as a restricted adviser has to demonstrate suitability in the same way as an independent? And what if a restricted adviser uses a whole of market approach to advise a client on, say setting up a pension annuity or IHT planning?

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Glint Thrust via mobile

Dec 04, 2012 at 11:00

Er,Simon,just one problem with your comment....the firm involved was not SJP.

Fact is,there are,unfortunately,not likely to be any IFA firms to refer to left standing in 18 months time. THAT is what's really concerning solicitors,which makes this whole debate pointless.

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David Cathcart

Dec 04, 2012 at 11:09

This is getting stupid.

There is one thing solicitors referring business to multi tied agents like SJP, but it is a completly different situation solicitors referring business to restricted advisers, who have been forced to adopt the tab of resticted because their only crime is to limit risk in their business by deciding not to recommend toxic offshore or structured products.

By all means outlaw referrals to tied and multi tied agents, but to penalise all pre 1/1/13 IFAs who have been caught by this totally pathetic tag is totally unwarranted and for pitys sake Ms Cardy when will you finally realise that a lot of excellent IFA's who you would have welcomed with open arms, pre 1/1/13 that have now had the foresight to de-risk part of their business are now being trated as pariahs by your organisation.

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Peter Fisher

Dec 04, 2012 at 11:19

Totally agree with DC. Another reason for the SRA stance could relate to links many solicitors have with Stockbrokers who seem top have taken the Restricted route!

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Simon Webster1

Dec 04, 2012 at 11:22

@ Glint - widely reported as such and I have not seen any other name in the frame pray enlighten us...

As to your comment on IFAs - I paraphrase Twain: "rumours of their (IFA) death(s) have been greatly exaggerated!" None more so than here I fear!

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Graeme Ferguson

Dec 04, 2012 at 11:33

Clearly they as a matter of due care refer to an Independent Adviser, however I wonder who all the lobby groups are who are trying to impose a non independent stance?

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Tim Framp

Dec 04, 2012 at 11:35

@David Cathcart - Your stance makes sense David and many advisers will be in that camp, however, you should have to take the rough with the smooth. The fact is from 1 Jan 13 there will be nothing to distinguish those advisers from the likes of SJP as they will all fall under the restricted label. SJP's marketing techniques are effective enough without allowing them to pull the wool over solicitors' eyes as well.

As far as I'm concerned if you want to benefit from Solicitor referrals you should be Independent and able to offer the full suite of advice from the whole of the market. Letting SJP in will kill many referrals to small advisory firms anyway.

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Dec 04, 2012 at 11:48

From the other NMA blog on this ever pointless argument:

As Sifa’s Ian Muirhead argues in his analysis of the SRA’s decision, the notion of independence still resonates with the public no matter how the term is defined by any regulator. The public understands it in its most straightforward sense: freedom to do what is best for the client’s interest, without constraints imposed by any third party.

Can someone kindly explain where these supposed constraints, as applicable to a proper, whole of market Restricted Adviser (not SJP and their tied/multi-tied ilk) emanate from?

Is it not from the adviser themselves who is de-risking their business and their clients porfolios - as DC succinctly states. Why is this bad?

If, and it's a pretty big if, a scenario were to arise whereby an excluded, higher risk (as deemed by the RA) investment might be worthwhile the RA, who, of course, until now has actually been an experienced IFA, would recognise this (as they're equally well qualified) and recommend appropriate action.....either by investigating the matter further themselves and implementing the investment or referring the matter elsewhere if they reckoned it was still a reasonable idea but didn't, themselves, want to touch it with a ten foot pole.

A pointless argument and one that will no doubt rage as long as the view is taken that's its actually quite easy to satisfy the FSA...and we all know how fair they are in matters of suitability.

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David Cathcart

Dec 04, 2012 at 12:02

Fair point Tim, but it is down to all of us to make our solicitor clients aware of SJP's sometimes dubious marketing claims.

Peter Fisher, you also make an excellent point about stockbrokers and DFM's, it is this trade body I suspect along with SJP have spent a fortune on "hospitable lobbying" to "articulatie their point of view to the SRA

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Keith Cobby

Dec 04, 2012 at 12:03

These tags 'independent' and 'restricted' will become increasingly meaningless. If the SRA/Law Society are confused what hope is there for the public. to understand the difference.

The FSA need to revisit the segmentation of the financial advice industry. RDR2 should separate the professional adviser (Chartered) being remunerated wholly by fee (no commission/adviser charging) and the financial salesman (tied/multi-tied) paid by commission/adviser charging.

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Chris F

Dec 04, 2012 at 13:00

As solicitors have always ignored this rule and/or been hoodwinked into *thinking* they were referring to an IFA (cough SJP cough) then why is anyone bothered about this?

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Jonathan Kirby

Dec 04, 2012 at 13:30

Ah well, as long as they are all regulated by the Financial Confusion Authority who cares?

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Ash Littlewood

Dec 04, 2012 at 13:33

Gas boy,

The problem is that the 'restricted adviser' label covers such a vast number of alternative areas that could be restricted. How can any client possibly be able to compare the different services and costs offered by firms who provide a restricted service? It would be a difficult task - like comparing the proverbial 'apples with pears'.

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Stephen Gallacher

Dec 04, 2012 at 13:33

KC Not sure why you think only Chartered Planners would be fee only and never need to use Adviser Charging & similiarly why a Diploma only qualified adviser would not also be Fee Only as opposed to Fee or Adviser Charging.

I'm sure there are a number of Chartered Advisers who still will need to offer their existing client's the option of Adviser Charging, as many will have come from the Commission Only type background.....or is this a totally new breed of adviser that you refer to.

Ultimately the Restricted term needs to be addressed as many have rightly pointed out that many Whole of Market advisers will be confused with those of the tied/multi tied...........which clearly is not a great outcome of the RDR and will be very confusing for clients (and easy for some to hoodwink!!) Say no more !

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Barney Stackhouse

Dec 04, 2012 at 14:04

For most customers/clients stockbrokers and discretionary fund management have been an expensive none-performing joke.

Whether restricted or whole of market, if the solution is appropriate and correctly justified by the adviser along with the client accepting the advice/planning recommendations then where's the rub?

Too many so called IFAs have been found lacking on regular and documented on-going reviews and caught out by the regulators as effectively using a panel of preferred providers without any robust auditable process to back up those choices.

If and when it all goes wrong they cease trading and the clean up costs fall to the FSCS which then picks the tab up from the remaining regulated firms, whether they be restricted or whole of market. We all pay in the end.


RDR is here, live with it or leave!

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Graeme Ferguson

Dec 04, 2012 at 15:06

@ Keith Cobby

What a bizarre comment about RDR2... that would help clear up the confusion??NOT

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Charles Campbell

Dec 04, 2012 at 16:01

Does independent mean whole of the market on all products or just the products that you advise on?

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Chris F

Dec 04, 2012 at 16:09

From the FSA handbook:

"To reflect the range of products that a consumer would expect

an independent firm to have knowledge of, and in line with work

the European Commission has undertaken, we have introduced

the term ‘retail investment product’ into the handbook. This

includes not just packaged products, but also structured

investment products, all investment trusts, unregulated

collective investment schemes and any other investment that

offers exposure to underlying assets, but in a packaged form

which modifies that exposure compared with a direct holding

in the financial asset."


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Charles Campbell

Dec 04, 2012 at 16:32

Thanks Chris

So if one can advise on world equities, corp./sov bonds, currencies, precious metals, funds (both open ended and closed ended), but not insurance policies or pensions, I assume I am independent on what I advise on, but restricted on what I can't? Does this make sense or is age creeping up on me?

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Chris F

Dec 04, 2012 at 16:39

Pensions and insurance policies would fall under the "package" definition - hence you would not be independent.

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Dolores Chimichanga

Dec 04, 2012 at 16:43

Spot on Barney!

We all know IFAs that have oversold Arch Cru and have now restructured to a new trading name and number. Any financial fallout here will now fall on other IFAs through the FSCS.

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Simon Webster1

Dec 04, 2012 at 16:45

If any part of your regulated offering is restricted you are restricted.

However as I understand it if you retain the capacity to advise i.e. you know where and what the full range of products might be used for you can refer to a specialist to expedite and remain independent

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Charles Campbell

Dec 04, 2012 at 16:47

Ummmm. Seems bizarre. What about the reverse then? One can advise on all packaged products therefore, they are an insurance specialist, a pensions specialist, and a general fund specialist, but can't advise on individual equities or on specific corporate/sovereign bonds or precious metals --- What is that advisor?

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Chris F

Dec 04, 2012 at 16:56

Charles, that would be an IFA. An IFA cannot advise on individual shares or bonds and would be insane to "advise" on precious metals anyway.

If you can find someone who can "advise" on commodoties then please do contact me as I have a bridge to sell that has just come onto the market in mid London.

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Barney Stackhouse

Dec 04, 2012 at 16:56

Thanks for that Dolores Chimichanga

I could add to the list: churned bonds,collectives, pensions - I even had a referral to a new client who after agreeing to an initial meeting told me "My last adviser only came to see me when he wanted to move something" lol

I rest my case

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Charles Campbell

Dec 04, 2012 at 17:28

LOL I hope it isn't Kew Bridge - it's bad enough with it. So, how can a person be independent if he can't advise on indiividual equities or corporate bonds and is sane enough not to advise on precious metals which seems to be the best performing asset in the last few years. It looks as if no one can be truly independent then. What do you think? Speaking of commodities (rather than commodoties), most things that have a market are commodities e.g. your mortgage, your insurance policy, your house, everything in your house etc etc.

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Chris F

Dec 04, 2012 at 17:34

I don't know but you have to call advisers something. It's semantics at the end of the day.

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Jimmy via mobile

Dec 04, 2012 at 17:59

How can anyone be independent if they don't consider sjp products?

As its silly comment time by some I thought I'd join in.

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Ian Lees

Dec 04, 2012 at 18:10

There can be nothing " semantic" between " restricted ", i.e limited and restricted by thise limitations - and " Independent ", unbiased by commissions or inducements - just giving good sound advice and being remunerated accoringly. I am sure if youasked the people of GB ( including Scotland ) they would want freedom from interference or limitations - or restictions. The Law Society is already restricted to giving advice aboout matters legal - would you want to use a solicitor who had further restrictions placed upoon theri service ? I wouldn't. For example in Scotland Solicitors give advice and sell mortgages and estate agent services - could they become tied agents " restricted " by Legal and General or some other mortgage insurance company . Let the Rotten Distribution Review . . .continue to . . .Rot . . . and lets get on with our job of . . .supporting our clients as Trusted Advisers . . .in an Independent way . Those of the multi tied persuasion can multi try to continue to serve their customers . . .in their own way, with their restrictions and their tied agencies . . . . and if the FCA are inrtent on treatng cusotmers fairly - let us see a product audit trail for each customer - to see what policies have been sold . . . and disclose their percentages of Not Proceeeded With and another one for Percentage of business retained. Such a solutionwould be good for IFA's - to demonstrate who are the trusted advisers - committed to on going service - and who is churning. There can be good reason for churning business - but changing a product every year is not one of them.

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Billy via mobile

Dec 04, 2012 at 18:15

@ian l

Thought from our last postings on previous article you were going to become a postman or post person? Having spoken to ours this morning they are fed up too, Royal Mail have stopped him using his bike and he has to share his mates van, now takes him 4 times as long and pollutes us all, least post is dry!!

World gone mad

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Ian Lees

Dec 05, 2012 at 07:16

In St Albans - they have merged a local " village " with our "serviced ",office> They have taken on many immigrants ( my app is still in the post ? ) - who unfortunatley cannot speak English. Apparently this is not required to be able to read an address. My post comes at 14 :00 hrs to 15 :00 hrs - on their " first class basis ", from a company which calls itself " Royal Mail ". Perhaps this should be changed to " Disloyal Fail ", service. Letters arrived quicker by stagecoach - and more accurately. Postcode ? Those remaining in the job are disallusioned - dispirited - but if you only work in the afternoon - it can't be all bad. I womder if Posty bosses are redistributed after huge payoffs - as wage slaves - at insurance companies or banks - like the old FSA, head bummers.

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