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Sifa: RDR independence definition could prompt referrals to SJP

by Alex Steger on Aug 24, 2011 at 07:36

Sifa: RDR independence definition could prompt referrals to SJP

Sifa managing director Ian Muirhead has raised concerns solicitors could start referring clients to tied advisers such as St James’s Place owing to changes to the definition of independence under the retail distribution review (RDR).

At present, the Solicitors Regulation Authority (SRA) requires solicitors to refer clients only to advisers classed as independent by the Financial Services Authority (FSA). Under the RDR, the criteria for independence will be toughened, with advisers who wish to remain independent needing to advise on a wider scope of retail investments, such as exchange traded funds and structured products.

The FSA has written to professional bodies reminding them they are not obliged to adhere to its definitions.

‘The definition of “independence” you use for the purposes of your requirements does not necessarily need to be aligned with our use,’ said FSA head of investment policy Peter Smith.

Muirhead (pictured) said the SRA would need to change its definition because many solicitors referred to stockbrokers who would be classed as restricted. However, he stressed the new definition should not be wide enough for tied advisers to benefit.

‘The SRA has no alternative but to opt for a different definition of independence, because of people, particularly stockbrokers, who will not offer life and  pensions,’ he said. ‘It’s a nonsense from the FSA to call them restricted. From our point of view, the important thing is to keep out the likes of St James’s Place.’

Sifa was last week subject to a shock takeover by support services provider SimplyBiz, which has said it could capitalise on the acquisition by applying for accredited body status, although it stressed there were no imminent plans.

61 comments so far. Why not have your say?

Philip Melville

Aug 24, 2011 at 08:13

Why does he not just arrange for all of his precious solicitors to be vacinated against SJP disease and eradicate this terrible blight on our industry once and for all !

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JHA

Aug 24, 2011 at 08:39

The last anti SJP rant only hit 101 comments! I am sure we can all do better this time....

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PensionMan

Aug 24, 2011 at 08:40

Why is it that there is never a week goes past where someone is having a dig at SJP?

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JBAT

Aug 24, 2011 at 08:50

People have a dig at SJP because they tell customers they are independant when in fact they are tied advisers, the same as banks using a "buy list" or prefferred pannel, in real maoney its still the same "restriction" to offer the customer.

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David Randall

Aug 24, 2011 at 08:51

What do people have against sjp or any financial services network as long as the individual does a good job for the clients, compliantly , ethiclly and within the rules thats what we should be concerned about.

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Philip Melville

Aug 24, 2011 at 08:55

What really puzzles me about SIFA and this whole SJP thing is that these professionals are people we are being encouraged to emulate and yet they apparently take little notice of their trade association and even have no ethics - my words as they apparently choose to do business with the heinious SJP rather than us holier than thou would be professsional IFA's.

Really if they cannot tell right from wrong how on earth can they do their day jobs ?.

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David Barnett

Aug 24, 2011 at 08:55

The reason for such vitriol is that "some" SJP advisers hold themselves out to be independent, thereby misleading their clients. We all know it goes on, but the regulator needless to say does nothing about it. I wonder why? Chances are they have more important things to do, like decimating the IFA community.

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Phillip H

Aug 24, 2011 at 08:58

I'm confused. What is the difference between SJP and Discretionary fund managers who have their own "independant financial advisers". Yes. they are independant but you can bet your bottomn dollar they are "incentivised" to use their own in house DFM. Ren Sheppard, Brooks MacDonald etc etc. And don't SIFA have one of these on their approved DFM "panel"? I may be wrong of course. This is not a dig I am just genuinely confused as to the difference

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Joe Egerton

Aug 24, 2011 at 09:00

We have always known that the FSA is an absurdity - Smith's statement shows that it has now become a reductio ad absurdum in its own person. Either advise is independent or it is not independent. That was established by Aristotle (Metaphysics Gamma) when he showed that the same statement cannot be both true and false. But the FSA would have us believe that advice is independent for a solicitor but not for an adviser....

Justice in Financial Services (www.justiceinfinance.org) has tended to say Hector Sants is bad - perhaps we are wrong: he is just mad.

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Graeme Ferguson

Aug 24, 2011 at 09:03

How topical, I spoke to a client yesterday who has meeting with this adviser group despite her friends saying don't do it. I have nothing against them personally but when a client says i am meeting SJP and I say which partner firm are you meeting and she says no it is just SJP and then I search the consultant and say hey you are meeting this firm...the client then says ohh I didn't realise that. I then say thats not something to worry about it is just how they are constructed, the client then says and I kid you not.... i think they are just going to sell me an investment bond anyway!!

Personally the problem i think is when something trys to be something it is not

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Chris F

Aug 24, 2011 at 09:04

"The FSA has written to professional bodies reminding them they are not obliged to adhere to its definitions."

I give up.

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Julian Sunley

Aug 24, 2011 at 09:09

Is it just me, or seeing that we have to wait for a Towry case verdict until probably October is an article mentioning SJP being sent out on the e-mail flyer to get some blog traffic going?

If I didn't know better then based on column inches it could seem that these two firms and RDR are the only things in our industry deemed as worth commenting on by many when I personally am getting quite bored of all three topics and would rather we focused on anything but them and covered some new ground........

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Ian Watson

Aug 24, 2011 at 09:16

My whinge about SJP is not necessarily that they don't do a good job . . . perhaps some do . . . but that at 2 of their client presentations #I attended as a "potential client", they dodged the "are you independent" question so cleverly so that nobody apart from me noticed. Lots of clients fall for it as they are blissfully unaware of the difference !

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michael bates

Aug 24, 2011 at 09:18

Independent refers to independent of market. Will the FSA or Mark Hoban step forward and explain what else they are now trying to make it mean please?

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Neil Liversidge

Aug 24, 2011 at 09:18

I really do not understand why this should be so difficult to solve. The FSA needs to simply inform SJP that it cannot compliantly accept referrals from solicitors and then to check that it is complying with the rules, failing which it gets a slap just as any of us would if we traded outside our permissions. Seemples???

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michael bates

Aug 24, 2011 at 09:19

May I add that this appears to be another example of corruption at the highest level?

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Compliance Officer

Aug 24, 2011 at 09:19

Chris F

The FSA can't make professional bodies adhere to its definitions as it doesn't regulate them - that's just a structural fact although why it feels the need to write to them to remind them of this is something of a mystery,

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l'ifa passeport en provenance de France

Aug 24, 2011 at 09:23

Let me think ? what chartered life planning hippy guru ifa are as successful as SJP… the only competition I get is from those boys and girls and the queens bankers. Must say something about their business model

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Bill Smith

Aug 24, 2011 at 09:25

Perhaps clients are "blissfully unaware of the difference" because there is no significant difference in terms of the financial planning outcome? I'd rather have a good tied/multi-tied adviser than a bad independent one. Interested how many "independent" financial advisers appear not to be able to even spell the word, by the way....

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Stevie Boy

Aug 24, 2011 at 09:28

‘The definition of “independence” you use...does not necessarily need to be aligned with our use,’ said... Peter Smith.

Does Peter mean that independence could be that the adviser no longer lives with mummy and daddy? or that they no longer receive pocket money? that they live in Independence, Missouri possibly?

In my shocking naivety I thought 'Independent' (in the sense of financial advice) could only refer to "whole of market" or "free from provider influence". Thanks for clearing this up.

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Joe Egerton

Aug 24, 2011 at 09:33

In reply to Neil, the rule that solicitors must obtain independent advice is made by the solicitors not the FSA. Clearly the FSA could and should deal firmly with any firm that misleads a client and it would be encouraging to see this rule applied consistently, not just on firms that cannot afford the services of Herbert Smith (legal advisers to Capita). So if a firm calls itself independent when it is not the FSA should do something. But it does not seem to be a matter for the FSA as to whether the SRA or Law Society requires solicitors to use independent advice.

What is truly objectionable is the FSA taking a line that it is open to others to define 'independence'. We may not like the RDR definition, but at least we know (or thought we knew) what it is. Now it seems that the FSA has thrown us all into Wonderland, where words no longer have their ordinary meaning or legal definition but can be whatever anybody decides they should be. We have all made jokes that the FSA is mad: now we have evidence that it really is mad!

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Ian Watson

Aug 24, 2011 at 09:36

Bill Smith,

Having spent 3 years with Openwork before going IFA, I saw much of what you say in action . . . a good tied adviser is better than no adviser and a bad Independent. The trick is whether the client understands the difference and genuinely does not need those products and services outside the tied remit. I found the tie too restrictive after a while for SOME of my clients, not all.

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Bryan fisher

Aug 24, 2011 at 09:38

i agree with much of the sentiment and emotion being spouted BUT lets be brutaly honest NOT all IFAs are Independent ie they have their favourite few providers. Some I know use just one wrap platform whether the clients likes its or not. They are very good guys who are upfront,honest,ethical etc but it still says IFA on the biz card. Interesting? One thing you can be 100% certain of though, the goalposts are still on casters and will keep moving! So maybe as an adviser community its time to actually 'work together' rather than keep slagging each other off in such a childish and often very offensive way. I dont see other 'professionals' doing this. NO they close ranks.

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Stephen Ng

Aug 24, 2011 at 09:39

Maybe Equitable Life had something after all; when they said that their definition of 'guaranteed' was slightly different from the rest of the worlds!

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Gillian Cardy

Aug 24, 2011 at 09:59

Independent, unbiased, whole of market advice is in concept and in reality better for clients.

I would like to see the full correspondence from Peter Smith before making a judgement - but as has been pointed out, the solicitors (and the accountants) make their own rules and if they want to change their position so that they can now include what we will post 2013 call restricted advisers then they can.

What this situation requires is a passionate defence of independence PLUS sufficient IFAs in the marketplace to whom solicitors can actually refer business. Scaremongers who say that there will only be half a dozen IFAs left post 2013 will not help the legal or accounting community to see how to deal with their non-incidental financial services clients.

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Christopher Petrie

Aug 24, 2011 at 10:10

I agree with Gill. The best form of defence is for the IFA community to ensure they are all RDR ready by the end of next year. If 90% of IFAs continue (and I suspect they will) then that's plenty of people for lawyers to refer their clients to.

In the meantime, I'm sure SJP and the banks will be struggling to get all their people ready for RDR....in fact I'm pretty sure those sort of groups will suffer a higher drop-out rate than the IFA sector.

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Nick

Aug 24, 2011 at 10:21

If 90% of IFAs continue

where did you get this info from Christopher?

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Bindair Dundat 2

Aug 24, 2011 at 10:25

The SJP business model is brilliant, with 21st Century marketing backed by fantastic PR and spin. The sales approaches a large number of their “partners” adopt are, as opposed to 21st Century, rather 1980’s – It is, arguably, a DSF in different clothes. Now, what is really wrong with this? Sadly, a lot of IFA’s are a little wrapped up in themselves which actually makes quite a lot of small packages – if the proposition is robust enough and the value can be shown then be confident in what you are doing as 2013 approaches.

We know that it is highly likely that the RDR will be responsible for driving those folk outside AB, B or C1 groups into the arms of “sales” people and most of these folk will end up in their local bank branch (assuming banks will offer this type of service – exit stage left Barclays/HSBC and others) So all advisers (outside the EB arena) along with manufacturers – (hence the rush to platforms) see the HNW market as the place to play. Sadly though, bond sales continue when other vehicles are more suited but only for now (watch what happens as the playing field has been levelled – SJP 3+1) The core issue should not be about a product sale but more about the complexity of the client need for it is here that value add can be demonstrated and where value is added an appropriate charge can be made.

Like many distributors, SJP, as a distribution business alone, loses money – the key difference here being that what is lost on the distribution swings is gained on the investment fund roundabouts. Whether they position themselves as independent and/or providers of “free” advice” matters not a jot in reality. As a vertically integrated business the disclosure, in due course, of the actual TER (AC is constant, charge for custody is constant with the investment fund charge being variable) will, I somewhat naively believe, show what a great job IFA’s do for the “total” (whether bundled/unbundled, does it really matter at the end of the day?) price.

In some cases the TER on an SJP “product” could, I figure, be well in excess of 300bps and possibly approach 400, add to this the cost of a round trip trade on an active portfolio and boy does the investment fund have to deliver year on year to validate all of this – SJP may think they have it sorted but the TSC recommendations suggest otherwise – Be brave O IFA friends and be confident in your wears, it may all come out in the wash.

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charlie palmer

Aug 24, 2011 at 10:33

If the SRAs struggle to define independence, then what hope do our customers have?

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T

Aug 24, 2011 at 10:38

What i don't get is why solicitors would refer directly to Stockbrokers. Would it not make more sense to go to an IFA first who can advise on the most suiutable tax wrapper and in turn refer on to a DFM etc should they feel it necessary.

I accept that this could be an additional level of charging but DFMs are hardly cheap themselves if funds are being railroaded down this route by solicitors then i can't believe it always serves the best interest or is the most cost effective approach for the client.

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Compliance Officer

Aug 24, 2011 at 10:45

It's not unreasonable that a client of a solicitor may want access to a stockbroking service as well as those of an advsior and/or DFM. Not all such services can be accessed via tax wrappers

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T

Aug 24, 2011 at 10:51

But wouldn't you need someone suitably qualified to make the call as to who is the best person to manage funds and how to access investments?

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JHA

Aug 24, 2011 at 10:54

T.

IFAs are the great unwashed in the eyes of solicitor's etc.

Stockbrokers wear the right suits and polish their shoes, and go to the same clubs, and shake hands etc (something which I understand SJP are quite good at too surprisingly!).

31/101 - still some way to go.

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Bob Wilson

Aug 24, 2011 at 10:54

Independence is a state of mind. I work for my clients not a product flogger and I defend them against the thieving banks and "ersatz" advice firms epitomised by SJP. That is why I am proud to ne an IFA.

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Compliance Officer

Aug 24, 2011 at 11:00

T. Not necessarily. If an experienced investor who, say, wishes to play the markets or access IPOs then a referral to a stockbroker would be logical.

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T

Aug 24, 2011 at 11:23

Surely if they are an experienced investor (which i suspect most aren't) they would already have a stockbroker.

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Compliance Officer

Aug 24, 2011 at 11:33

Not necessarily. Could have done plenty via on-line execution services or maybe overseas.

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l'ifa passeport en provenance de France

Aug 24, 2011 at 11:35

Did SJP get into Arc cru , Keydata and all the other crap UCIS.. me think not!

The IFA brand is dead ! its not trusted and it is not real . Why have so many top advisers rebranded Wealth Management?

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Gillian Cardy

Aug 24, 2011 at 12:27

Independent, unbiased, whole of market advice is in concept and in reality better for clients.

I would like to see the full correspondence from Peter Smith before making a judgement - but as has been pointed out, the solicitors (and the accountants) make their own rules and if they want to change their position so that they can now include what we will post 2013 call restricted advisers then they can.

What this situation requires is a passionate defence of independence PLUS sufficient IFAs in the marketplace to whom solicitors can actually refer business. Scaremongers who say that there will only be half a dozen IFAs left post 2013 will not help the legal or accounting community to see how to deal with their non-incidental financial services clients.

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Philip Wise

Aug 24, 2011 at 13:39

Independent advisers have been able to use regulations for marketing purposes for many years.

Has the case for independent advice been made so poorly that solicitors still have to be forced to refer their clients to IFAs?

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Duncan Carter 2

Aug 24, 2011 at 13:59

Well if what are currently classed as IFAs, solicitors and other professionals are struggling with the new meaning of the word 'independence', what chance has the man on the Clapham omnibus?

I think that there will be a whole bunch of confused people come 1.1.13 when RDR is let loose on the great unwashed. The original objective of the RDR was to be applauded but it's fast turning into Frankenstein's monster with clarity of vision and execution conspicuous by its absence.

I believe a professional body that is exlusively for independent planners is needed more than ever, that would certainly help clarify who are genuinely independent.

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Eugen

Aug 24, 2011 at 14:00

SJP agents get lots of referrals form solicitors, but SRA is not seeing it. It is about the people who work for SJP, they are salesmen and very good at building raport with other professionals.

The other professionals: solicitors, accountants are not interested in 'independence' but in '% of commission' they get. SJP is/was good in hiding the high initial commission (5%) into high AMC as SJP run their own funds.

With RDR, SJP agents will struggle a bit to charge fees but as good salesmen, they will get it rapidly. Unfortunately the accent will move from 'distribution' or 'sales' to advice and here they are not very knowledgeable. If there is a downside for them is the lack of knowledge comparing with others.

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Harry Katz

Aug 24, 2011 at 20:14

I’m not at all sure of Peter Smith’s agenda, but on those occasions when I have had the opportunity to see and hear him at close quarters his antipathy to IFAs is manifest.

As I have carped on for ages – these new divisions are a complete nonsense. Customers won’t understand and the FSA will be completely unable to enforce the divisions robustly. (They don’t do it now – so what hope in the future?) If you examine the disclosure requirements for Restricted Advisers they are a complete farce.

As has been said – to call a Stockbroker restricted is Kafkaesque in the extreme. When you go to a dentist you don’t expect to have your piles examined.

To an extent I do see where the regulator is coming from with regard to independence. Some of the big outfits who are now categorised as independent are in fact a long way off being so. But that doesn’t justify this monumental cock up – which merely demonstrates in clear relief how acutely inept the Regulator and those who work there really are. Let’s face it if they were really hot stuff the industry would have snapped them up. As it is they have to serve a few years at No.25 and then some firms take them on as gamekeeper turned poacher. The senior members are really only there for the ‘gong’ at the end of it.

As to SJP, I guess they have some competent advisers and I also recon they have some pretty good infrastructure and backup. But if I was a potential customer would I use them – not a chance. In the same way as I wouldn’t use some of the so called stoickbrokers or ‘wealth mangers’ who stuff portfolios full of collectives – when these people should be accessing shares globally for their clients. (If you want collectives go to an IFA, you don’t need a stockbroker for that!)

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Confused 2

Aug 25, 2011 at 10:42

What a complete load of proverbial!!!

Eugen - how do you know that SJP ""agents" get 5% commission - i dont and i am an SJP partner? We can't give advice? - We are not knowledgeable? - Ask any ex IFA - like me about the training, the qualifications and help and encouragement to get qualified, no one is supporting the adviser more than SJP.

The SJP model is not broke or unprofitable but is geared to providing a long term business model for its advisers and firms.

You need to speak to a recruitment manager????

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michael bates

Aug 25, 2011 at 10:57

Very, very well said Harry Katz. Absolutely spot-on.

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Philip Melville

Aug 25, 2011 at 10:58

@ Confused,

Problem with you is that you dont know it all or a man that does like most of the commentators on here.

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l'ifa passeport en provenance de France

Aug 25, 2011 at 11:05

Confused 2

a good friend popped in my office yesterday whom is a partner ( marketing term) with you fellas at SJP.

I like the words used for your proposition , platform. now where did you lot steal that from?

The slight issue he had was that your "pension platform" has a TER of 2.7% but you guys only get 0.25pa ! My proposition total 1.8 TER and I get 1%.So much for being a partner eh?

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Confused 2

Aug 25, 2011 at 11:07

Philip,

I agree that i will never know it all - and i would expect the same from any other ethical, professional business man. I would also not take the time nor the effort to criticise fellow Chartered professionals in my industry.

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Philip Melville

Aug 25, 2011 at 11:21

@ Confused,

Lighten up mate I was trying to cheer you up. I think using the words ethical,business,professional and man to describe some of these annonymous whingers is inappropriate at best.

Without Weinberg and Wilson's efforts over the years these people would not have an industry to moan about but then of course they seem to rarely have anything positive to say about anything. .

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Confused 2

Aug 25, 2011 at 15:10

Philip, I am happy!! just p__ed off with the bickering that goes on in our industry. What other profession gives rise to such vitriol?

Nearly the weekend!!!

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Bryan fisher

Aug 25, 2011 at 15:21

to be classed as a professional one needs to behave professionally, its not all about RDR, qualifications, tied status etc. I doubt we will ever be viewed as a profession.

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Scotty Jock

Aug 25, 2011 at 15:46

What I find surprising/disappointing is SIFAs apparent change in stance.

Quote from David Seager, development director at SIFA 2nd March 2011

"his organisation will robustly defend the requirement for solicitors to only refer to independent advisers and says it may take steps to help members maintain their IFA status"

Have they given up on that one?

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michael bates

Aug 25, 2011 at 15:47

Bryan, the point for discussion is the RDR definition of independence. It has always meant "independent of market" ie not tied in any way. How can that definition be any different? Is there a reason for diverting into debate about who's professional and who's not?

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Gillian Cardy

Aug 25, 2011 at 18:23

A quick read of the SRA rules is most instructive ... the requirement to refer to an IFA specifically for "insured products" is clear - and given I understand that most SJP advice revolves around investment bonds and joint life second death policies for IHT planning any referral to them, or anyone not an IFA, would appear to be a clear breach of rules.

The requirement to refer to an IFA is less obvious where only investments are concerned ... but the referring solicitor has a clear and over-riding requirement to act in the client's best interest.

If a solicitor determines that the answer for their client can only be a stockbroker portfolio then perhaps they meet their SRA obligations ... but without going through the regulated advice process I'm not clear how a solicitor could determine that the answer could only be a discretionary managed portfolio through their favourite stockbroker.

So a solicitor who has not pre-judged their own answers and who is referring clients for an independent analysis of their needs must surely understand that only an Independent Financial Adviser could be seen to address the client's best interests.

Solicitors need to be encouraged to continue to maintain their own professional integrity by referring to IFAs - and we need to ensure a healthy supply of IFAs to help them out!!

Have no fear - some robust defending WILL be taking place!!

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T

Aug 26, 2011 at 00:08

That was exactly my point but it seemed to get removed from the thread!

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Confused 2

Aug 26, 2011 at 11:31

Gillian,

How many Solicitors do you know that will refer to an adviser for an Insured product? In my experience they will refer for IHT advice or trust advice?

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Gillian Cardy

Aug 30, 2011 at 15:01

@Confused 2, I was merely repeating the SRA rules ...

The SRA rules are very specific about "insured" products where the referral MUST be to an IFA.

If we assume that the solicitor has not pre-judged their own answer by already deciding (for example) that a joint life second death whole of life policy, or an investment bond, should be excluded from the advice, or that the client really only needs a stockbroker portfolio (which they are by definition not regulated to decide!!) then the only thing that a solicitor should surely do which ensure that they cannot breach the rules is to refer clients to an IFA.

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Confused 2

Aug 30, 2011 at 16:24

Gillian, so it would make sense therefore for a qualified solicitor to refer to a cornershop IFA so as to ensure that they abide by the rules rather than a STEP qualified Chartered Financial Planner who can give advice to the Solicitors clients that is guaranteed?

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Philip Melville

Aug 30, 2011 at 16:37

" Guaranteed " ? by whom ?

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JHA

Aug 30, 2011 at 16:41

"STEP qualified Chartered Financial Planner who can give advice to the Solicitors clients that is guaranteed"

...but potentially against the SRA rules! And limited potentially in the advice that is actually being sought.

Bit like saying Jeremy Clarkson does not need to follow speed limits!

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Gillian Cardy

Aug 30, 2011 at 16:51

"Cornershop IFA" is a bit perjorative??

A bit like a "cornershop solicitor"??

I would say that it would "make sense" for a suitably qualified solicitor to refer their clients to a suitably qualified IFA.

If what you are asking is whether is it better for a solicitor to refer a client to a Chartered / Certified / IMC / STEP Financial Planner who is Restricted (SJP??) OR Level 4 Independent Financial Adviser then I would say (given that a solicitor is in no position to judge what possible financial planning outcomes could arise) then the client's best interests (which is the over-riding rule) are absolutely best served by referral to an Independent Financial Adviser.

Having said that, if a client's requirements seem particularly specialised then I could imagine that a solicitor would see that best interests are served by an IFA with appropriately higher qualifications in the particular "problem area".

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