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Forward thinking


One of the supposedly persuasive arguments formulated by the pro-RDR brigade is that the proposals will force advisers into that vocational area populated by professions such as solicitors. The argument goes like this. Solicitors are profess-ional and are looked up to by the public, they only work on a fee basis and clients are willing to pay their fees.

How perverse then that the FSA requires existing qualified advisers to take further exams just to remain in business when the Law Society, in common with other regulating bodies, place no such obligation on their members.

Nonetheless, a closer look at the two industries provides an interesting contrast. There are around 33,000 IFAs compared with 115,475 solicitors currently in private practice. Latest FOS complaints figures show that around 32,000 complaints were levelled at IFAs whereas the Legal Complaints Service estimates 19,700 against solicitors for the 2009/10 year.

A simplistic rejoinder would suggest that IFAs receive six times as many complaints, however, these figures mask the reality that advisers are fair game for complaints and it has been open season since the politically driven pension review days.

Unlike the FOS, the Legal Services Ombudsman can only deal with complaints which have been assessed and rejected by the Law Society, which only looks at cases where the solicitor and client could not find agreement. In other words, a three-stage filter process which, like successive barriers across a road, serves to reduce the numbers getting through.

So, will the public’s faith be restored if advisers move to higher qualifications and work on an agreed fee basis? Most observers would accept that solicitors are not universally held in high esteem and the Solicitors Tribunal regularly strikes off or suspends around 100 individuals each year. While the FSA has been extra vigilant over the last 12 months, the bulk of the bans have been for non-payment of fees and failures to complete the RMAR as opposed to advice-based failures.

Why then does the public pay fees to solicitors? I would argue that in the main they have no choice and there are certain tasks that even the most able consumers are incapable of carrying out such as instructing a barrister.

Therefore, it is not that consumers flock to pay fees, it is simply that until recent years it has been the only payment basis available. In my experience, consumers exhibit no great urge to interact with legal practitioners and regularly groan at charging structures broken down into six-minute slices.

More revealing is the upsurge in no win, no fee companies, many of whom are offshoots of firms of practicing solicitors. This approach has enabled them to prospect for new clients, an approach which has been conspicuously successful judging by the recent FOS revelation that 28 per cent of complaints (45,000) now derive from third-party “specialists”.

As the finance industry winds its way towards elitism and a protracted period of contraction, the legal services industry has opened itself to new opportunities. It has grasped that a no win, no fee services appeals to the general public. Logic and mathematics does not form part of this appeal, it does not for most services but then it never has.

Advisers have their own no win, no fee system and it is called commission. An adviser prospects for a new client and, if successful, receives payment from the insurer for his efforts. Is the finance industry moving forward or is it the legal services industry? Ask a client and he will confirm it is the latter.


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There is one comment at the moment, we would love to hear your opinion too.

  1. stuart white - Zone Financial 15th June 2010 at 10:38 am

    A good article Alan. My concern is over the comments in your last paragraph. If advisers have their own ‘no win no fee’ system then surely this will limit these advisers to only recommending solutions that pay them a commission. Should solutions which are more appropriate for the client exist that do not pay commission, then by this rationale the client’s best interests are not being put first.
    Sadly it is common place for clients to think that they are receiving impartial independent advice from advisers who they believe have their best interest at heart. I’ve come across numerous horrifying cases of inappropriate advice delivered by polished and believable advisers where the adviser motive has been what is best for them not the client, or the adviser has tried to ‘best fit’ the client’s requirements into something that pays commission.
    Until advisers are able to structure their business’s to be profitable and offer value to their clients without the necessity to implement a product in order to be paid, then the client will never be put first, only squeezed into a solution that pays commission.

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