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Solicitors' regulator set to rubber-stamp restricted referrals

by Alex Steger on Nov 26, 2012 at 16:47

Solicitors' regulator set to rubber-stamp restricted referrals

The Solicitor’s Regulation Authority (SRA) is set to rule that solicitors can make referrals to any type of financial adviser ‘regardless of whether or not they are tied to a particular institution’.

Following a consultation the SRA is set to tell its board on Wednesday 28 November that solicitors should no longer just make referrals to independent financial advisers.

Earlier this year the SRA launched a consultation on solicitor referrals in the light of the Financial Services Authority’s changes to the definition of independence.

In its consultation paper published in July, the SRA outlined three possible options for the future of solicitor-adviser referrals having been invited to reconsider its stance by the FSA which conceded that its post-RDR definition of independence might be more onerous than the one currently used by the SRA.

The three options proposed by the consultation were:

  • maintain its 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;

The third proposal was the SRA’s preferred option.

Agnieszka Scott, SRA director of policy, said: ‘We had an excellent response to our consultation and we'd like to thank all those who responded. We've taken on board the comments received, some of which have given us food for thought.

'However, nothing has changed us from our belief that the best way forward is to implement our preferred option, option three, and that's what we'll be recommending to the board. This represents the best fit with outcomes-focused regulation as solicitors, as highly qualified professionals, would be free to assess and discuss clients' needs, not be restricted by a prescriptive rule.’

35 comments so far. Why not have your say?

Anitaki

Nov 26, 2012 at 16:55

So its a case of,

"If enough people break the law, the law must be wrong, so change it"

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Simon Webster1

Nov 26, 2012 at 16:58

The decision is totally counter to solicitor culture

The SRA is largely staffed by former FSA employees .

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Barman

Nov 26, 2012 at 17:01

Can you prove that Simon?

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Welshman

Nov 26, 2012 at 17:01

Seems to me the SRA are weak and havent got the balls to make the right decision?

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James Tarry

Nov 26, 2012 at 17:08

The SRA say the clients choose, not the solicitor. If The solicitor offers a choice of independent or restricted, and explains the difference, the client can then make an informed choice as to what sort of advice they want.

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Simon Webster1

Nov 26, 2012 at 17:09

Barman - do I need to?

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PHILIP EDWARD

Nov 26, 2012 at 17:09

Surely any competent solicitor would only refer to an Independent whole of market IFA. If not then the solicitor would leave themselves open to criticism or claims, if the client ended up with the wrong product from a restricted adviser.

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l'ifa passeport en provenance de France

Nov 26, 2012 at 17:11

Well thats commision still at SJP and all the leads that you will ever want ! fill your boots time at SJP

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Steve Billingham

Nov 26, 2012 at 17:16

But in reality, will Solicitors choose restricted?

Their due diligence obligations (to ensure that the needs of each client can be met by a restricted proposition) would seem to be more onerous than selecting a truly independent firm.

Presumably they will be held accountable in some way for their decision about who to refer to and will therefore need to understand the nature and scope of any restriction and the potential implications for each client.

Safer, for them to select independent in my view. Just need to position that effectively with them.

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James Clancy

Nov 26, 2012 at 17:16

Can't see any problem with the proposal.

It's up to the client to decide.

Hopefully, the solicitor will create a level playing field and ask a number of advisers to make presentations for the business. Instead of relying on a well oiled slick marketing machine, or his friend from th the pub ,rugby or golf club.

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Terry Nutkins via mobile

Nov 26, 2012 at 17:16

Lets be clear "tied" in this instance means SJP.

The solicitors I know have long been courted by our "high class sales force" mates, and some have bent the rules to refer to people they like.

Doing this means that SRA don't have to go looking for people to punish.

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Paul Barnard

Nov 26, 2012 at 17:24

The CPD requirement to "assess" the most suitable adviser will be...?

Presumably TCF doesn't apply to this?

Most solicitors can't even draft a suitable Will in my experience and the legal profession is so far overdue - "Tesco Law" hasn't shaken them up enough yet. I presume that the next step will be to allow them to receive a cut again?

Scandalous.

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Bob Donaldson

Nov 26, 2012 at 17:24

It is not the fault of the SRA it is the fault of the FSA as the lines are now so blurred no one will know the difference between restricted and independent. If you don't have the tools in your bag as a restricted advisor then you simply go and get another agency with xyz company to obtain the tools.

It is not like the days of tied and independent where your tied company had you sewn up in a mail bag and you couldn't get an agency elsewhere.

The waters are now so muddied it is not clear for anyone anymore what they are getting regardless of any declaration made by the advisor at the first meeting.

Furthermore the companies with the products will take business from any source. Remember the 'goiod old days' where all an sundry had an agency with Guardian, Sun Alliance, Royal Etc. Even my local newsagent had an agency so he got commission as well.

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l'ifa passeport en provenance de France

Nov 26, 2012 at 17:27

NEWS FLASH !

price of second Bently's , pin strip suits and rolex watchs have all increased

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Alistair Cunningham

Nov 26, 2012 at 17:57

Quelle surprise!

"You, Mr Solicitor, decide what's best and we'll judge you with 20/20 hindsight!"

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Adam Grant

Nov 26, 2012 at 19:07

Bang,... Ouch,...

What's that?

The sound of an IFA falling of his high horse,...

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Paul Barnard

Nov 26, 2012 at 21:07

Doubtless he'll meet you down there at the bottom

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Eugen

Nov 26, 2012 at 21:08

I see this as a sensible decision.

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Ascuigacappelli

Nov 27, 2012 at 08:32

I am a little interested to see the negative comments, almost suggesting that Restricted advisers shouldn't be recommended by any solicitor?

I agree with Bob Donaldson; independent or restricted will make little or no odds next year, as long as the restricted adviser has enough areas of expertise to be able to advise a client properly. A solicitor should know if an adviser he is recommending has experience/ability to meet the needs of his/her client either from past experience or due diligence.

My firm will be Restricted in the 'new era' and, unless we are missing something, we have no concerns over our existing professional connections continuing to give us leads.

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Anitaki

Nov 27, 2012 at 08:54

I liken this to a very important football match

During the match, one team wanted the goalposts moved, without which they could not win. As the match neared the final whistle, the F.A. agreed to the request.

Those who supported the team that played by the rules understandably feel cheated. The other team will laugh all the way to the bookies.

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Financialplanner2012

Nov 27, 2012 at 08:59

The core requirement is that a solicitor must always act in the best interests of their client, and never be conflicted by their own interests. Previously, this was inforced by a common-sense prohibition on referrals to product salesman.

However, even with such a clear-cut restriction in place, smooth-talking salesmen were still able to talk guillible solicitors into recommending them.

Thanks to the FSA, opacity will now rule and it will be open season for St James's Place.

Should Option 3 be adopted, I trust that the SRA will require solicitors to maintain records of such discussions and written evidence that the restrictions of the recommended adviser are fully disclosed to the client; together with details of any financial arrangement or inducements received from the adviser's firm.

Hopefully, there will also be a requirement on firms to demonstrate that they do not exclusively refer to one firm alone, and that they will also have a duty of care to carry out due diligence on firms.

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Ascuigacappelli

Nov 27, 2012 at 09:04

Anitaki - I would suggest it is more like supporters placing large bets on a game before the kick off - then being annoyed when the manager picks a different team to what they expected.

Perhaps waiting for the team sheet makes sense?

(Not having a dig by the way).

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JD

Nov 27, 2012 at 09:25

Surely the point is that there is a difference between 'restricted' and 'tied', which seems to be being missed. 'Restricted' is more like 'specialist' and if a solicitor (or accountant) makes a judgement that there is a client needing a specialist service, eg a DFM, where most if not all firms will be 'restricted', the introduction can be made; for holistic financial planning the solicitor will no doubt still introduce to an 'independent' - many of whom, I will bet, won't be using or even considering investment trusts or ETFs for their clients' portfolios!

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Alistair Cunningham

Nov 27, 2012 at 09:40

JD > If they "won't be using or even considering investment trusts or ETFs", they're not independent!

(Although I actually agree with you, and think many 'independent' firms won't be!)

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Stephen Ng

Nov 27, 2012 at 10:07

The path for compensation or the satisfaction of a claim against poor advice should therefore extend to the solicitor referring if it transpires a client referral to a Restricted adviser should have been made to an Independent adviser; that would have meant a better client outcome. It gives licence to the ambulance chasing lawyers to extend their search for compensation and costs.

If I were a solicitor/lawyer, I'm sure my PI providers would need to be told and may even make exclusions for Restricted referrals. SJP and others may benefit but there will be plenty of lawyers out there not checking the small print! In reality, those Lawyers who understand and treat their clients as the best Chartered & Independent advisers do will always refer to them. Quality and independent integrity will always find each other.

Maybe the law of unintended consequences will rear its head for the good. I've met several solicitors over the years that had always thought the SJP referrals were to IFA's!

Maybe, just maybe, they will look more closely at this change and look at what they have been doing and make a professional judgement that not only protects their clients but from their own positions, protects the integrity of their firm and good name.

Its just a thought!

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Paul Barnard

Nov 27, 2012 at 10:13

So, JD, you think that the solicitor should decide which financial service his client requires first, then refer it on?

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DG

Nov 27, 2012 at 10:15

@JD – good points

It’s very interesting to read these blogs at the moment as they rage about restricted and independent as if they are so very far apart. It seems to me from the comments made over the last few months that those who are clinging so tightly to the notion of being Independent are also arguing the point as to how “easy” it will actually be to satisfy this FSA requirement by adopting certain “procedures” for their client bank which will enable them, at the drop of a fairly small hat, to argue they HAVE looked at everything (that “may be pertinent”) but have then elected to actually operate in a more restricted format.

But won’t that be the procedure being adopted by a restricted adviser – to all intents and purposes? Sure the argument is quite rightly made that, if you wish to comply with the latest diktat from Canary Wharf and call yourself Independent, you must be prepared, at least initially, to work in all sorts of esoteric investments (I’ll emphasise the word “prepared” to avoid the usual rebuttals) although it’s fair to bet that in most cases these “procedures” will miraculously end up in none/few of these oddities actually finding a place in the final set of recommendations. But isn’t this just smoke and mirrors to pander to the FSA’s bizarre notion of Independence in 2013.

What makes me chuckle about this argument is that the other big story of the week – the FSA’s censure of Capita – seems to have no bearing on this argument. In my opinion is has a very great bearing.

If you are prepared to argue the toss at some future, presumably rigorous, investigation as to your Independence and robust procedures with an organisation which is so fundamentally dishonest....good luck! But there is a world of difference, a positive chasm, between a broad, wide ranging Restricted service and a tied agent and, indeed, our friends at SJP who, quite frankly, I wish we could just leave to get on with what they’re doing as they must be laughing their socks off at the self-righteous views sometimes expressed on these pages. Yes they offer are far more restricted service than some but, in reality, they are dealing primarily with investment portfolios for higher net worth investors who seem relatively loyal to their service. And are they being so badly served? Where is the demonstrable client detriment? It’s pretty obvious how the Arch cru investors detriment has been caused and the FSA is still steadfastly looking the other way. Is that an organisation that merits you bending over backwards...and for what ultimate benefit?

Respect is earned. At the moment the FSA is headless although no doubt is just waiting for a new head so that it can claim a metamorphosis into an organisation fit for purpose. But, for now, pandering to an impossible notion of what an (I)FA can achieve for their clients from a discredited regulator seems pointless.....and possibly fatal for your business.

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Julian Stevens

Nov 27, 2012 at 10:17

Let us not overlook the fact that most firms of solicitors are restricted, in that virtually none covers all areas of the law. Litigation, conveyancing, estate planning, matrimonial, corporate, criminal, employment ~ you'll never find all those disciplines under one roof. Okay, it's not quite the same as financial planning but, for the vast majority of people, the range of products and services covered by a restricted GP financial adviser are likely to suffice.

The important thing, as I see it, is that a clear line of demarcation is drawn between restricted and tied advisers and that the latter are not permitted to present themseves as the former.

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Glint Thrust via mobile

Nov 27, 2012 at 14:02

To most solicitors,this is a strait forward choice between referring to an IFA,who may or may not still be in business,as an IFA or,indeed,in any capacity,in 5 or 10 years time,or a £2bn pound,FTSE company.

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Stephen Ng

Nov 27, 2012 at 15:17

If I were a solicitor and was as fearful of making a potentially litigeous and costly 'mistake', as we all are daily, it would be a simple choice, i.e. one that could not come back on me, £2B FTSE company or not.

Let's cut to the chase here. Solicitors are all grown up and an educated lot. Let them make their own minds up and make their own choices. I do think that the relaxation of the SRA guidelines/rules will actually make them focus their minds about choices made in the past v choices they make in the future.

Those that have used the £2B FTSE firm and others will almost probably continue to do so until such time that it costs or damages them. There is as much a chance of this happening as similar problems affecting an Independent adviser, both big or small.

By the way @Glint T, I'm not sure solicitors look that far ahead do they? In my experience, theyre almost always more concerned about the client receiving good advice. Maybe you could tell us otherwise or is that how you sell them the benefits of the £2B FTSE .

There is abosolutely nothing wrong with having a wonderful and slick marketing and tied business proposition behind you, great tech support and some great products; we're often jealous of you! I once workled for one.

However, don't forget to tell the people you deal with what you are and what you're not, That's the only gripe. If the solicitor or client then want to deal with you, thats great.

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Julian Stevens

Nov 27, 2012 at 15:46

"don't forget to tell the people you deal with what you are and what you're not". Quite. Except that we all know of one company that has been reported on numerous occasions for not doing so, hiding behind the smoke screen that whilst it may be WoM for some things, it clearly isn't for others, a fudge that I for one find not only objectionable but I find it objectionable that the FSA continues to fail to do anything about it.. It's Allied Dunbar all over again.

I worked many years ago for a former Allied Dunbar salesman who'd brought most of his clients with him to the IFA company of which he'd become a director. When I took over responsibility for servicing the affairs of those clients, it was quite surprising how many were under the impression that he'd been independent, WoM, call it what you will. The bottom line was that he'd misrepresented his status or, at the very least, done nothing to counter the impression on the part of the client that he was independant.

How the FSA cannot see that in certain quarters that behaviour is still continuing or, if it does, how it can fail to see that something should be done about it, is extraordinary. maybe extraordinarily fishy (no pun intended).

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Glint Thrust via mobile

Nov 27, 2012 at 16:40

Stephen,Julian,

I wish that it was about trust and the relationship,but solicitors are saying to me that they are uncertain that the IFA community is going to survive and are worried that,if that happens,who are clients going to come after for recompense for the excess claim above theFSCS limit? Them!

Hence their desire to refer to the firm that we all love to hate.

After all....key data,arch cru,etc.

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Stephen Ng

Nov 27, 2012 at 16:48

It's a keen observation GT! I'm so glad they are concerned about 'them'. Aboit time too.

Maybe the best thing they can do is suggest the client goes onto Unbiased and makes their own choice?

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Julian Stevens

Nov 27, 2012 at 17:01

But surely all solicitors will have been reassured by Hector Sants' statement to the TSC in March 2011 that the FSA has no prejudicial agenda against small IFA's?

Or by Martin Wheatley's statement that the banks would do well to take a leaf out of the IFA book when it comes to looking after clients?

Or Linda Woodhall's statement that after 31st Dec 2012 all advice will be up to scratch?

How can solicitors possibly doubt that the future for (what'll be left of) the IFA sector is bright going forward?

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Paul Smith via mobile

Nov 28, 2012 at 20:17

A great opportunity for clients to have more choice.

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