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Gill Cardy: Why would solicitors want to move from indy referrals?

It seems somewhat “behind the curve” for the SRA to only now consult on how to respond to the new regulatory environment. Perhaps they thought it wouldn’t happen, and perhaps they only recently realised that they must review their policy.

Leaving consultation so late means solicitors have less time to understand the changes and the new business models, and less time to do due diligence on the various emerging business models.

It is my view that this consultation is triggered not by referrals to IFAs, but to discretionary investment managers. With RDR implementation they too will be subject to the same regulatory framework with which IFAs are very familiar. And they too must decide if they are restricted or independent.

Wealth managers who “only” advise on investments and who do not advise on pensions, or trust and estate planning using investment bonds, or who only use in house funds or structured products will be restricted. And so they should be.

It’s all very well to assert that clients who go to a stockbroker expect a portfolio of investments, but it avoids the question of what the constituents of that portfolio are, and who advises the client to do things that the stockbroker doesn’t consider. If the stockbroker doesn’t mention it, is that because it’s not relevant, or because it’s simply “not what they do”?

The client doesn’t know; in asking for the referral the client is asking one professional connection for advice on who best can advise them on their needs.

Solicitors able to refer clients to restricted advisers will need firstly to understand what the nature of the adviser’s restriction is. Are they restricted because they represent St James’s Place, or because they only do investment management, or because they have a limited panel of in house funds, or because they have decided to use only one platform to the exclusion of all others?

Then the solicitor will have to understand the implications of this information and determine if it is relevant to the client. But is the solicitor in referring their client to a firm which does not advise on pensions, in effect advising the client that pensions are not important? And is the solicitor competent, or more importantly authorised, to make that kind of judgement, to give that kind of advice (and carry the liability if they are subsequently judged to be wrong)?

So, where does this leave IFAs?

If you think that you can offer a better or more cost-effective service as a restricted adviser, then be a restricted adviser. If you consider that being Independent is the only way to deliver comprehensive advice which has the client’s best interests at heart then be an independent adviser.

The possibility that solicitors may in the end allow referrals to restricted doesn’t stop continuing referral to IFAs.

When you emphasise the real value in independence, that the independent adviser can go literally anywhere that the new client’s needs might take them, why would a solicitor want to take the risk of referring clients to anyone other than an independent adviser? And why would clients want to be invited to take that risk?

Finally, why would financial advisers make such a fundamental business decision on what another profession might decide, and may change again in the future.

The solicitors will make their own decision, and so must you.

Gill Cardy is the managing director of IFA Centre


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There are 11 comments at the moment, we would love to hear your opinion too.

  1. From my experience solicitors will refer business to people they get on with. That is the reason why St James’s Place partners have managed to obtain referrals from them.

  2. Gill – Good article but like in all lines of sales people will “Buy” from people they know and trust. Speaking from 26 years experience in the industry I can tell you the fact of the matter for most solicitor referrals (exception being HNW or very HNW) restricted whole of market will make no difference in satisfying clients needs. Just because a current IFA goes restricted, it does NOT mean that they cant use “off-panel” providers and products so they too will also be able to ….”deliver comprehensive advice which has the client’s best interests”.

  3. All well and good Gill but then why should the SRA necessarily change their ways just to go along with the FSA’s new definition of independence?

    Being independent in the post RDR world just means you advise on a limited and specific range of products as defined by the FSA.

    Want advice on a pension transfer, long term care or your shares? Good luck because an ‘independent’ FA doesn’t have to provide any of these. But a restricted adviser might/can…

    Clear, fair and not misleading?

  4. Looking at the SRA website they are recommending option 3 which would mean that solicitors would be able to refer to any adviser as long as they make the status of the adviser clear to the client. It will then be down to the client to decide whether they wish to use the adviser recommended.

  5. John Blackmore 11th July 2012 at 5:59 pm

    >in asking for the referral the client is asking one >professional connection for advice on who best >can advise them on their needs.

    Exactly. Sometimes this will mean a referral to a generalist Independent adviser and sometimes it will mean a referral to a specialist restricted adviser.

    The SRA may be behind the curve but at least they are now catching up. The interests of the client must be paramount – and the new daft FSA definition of Independent means that referrals to restricted must be allowed.

  6. Gareth Maunder 11th July 2012 at 6:01 pm

    Marty – well said. Independent versus restricted. If you can go off-panel when required, really what is the difference? If it’s about cost, then why use a professional adviser? After all there’s all these free non-advised moneysavingexperts out there giving non-advised advice. 🙂

  7. Anon is exactly right.
    The FSA have muddied the waters so much that people have no clue as to the REAL adviser status.
    SJPP would not exist otherwise, as least not as a major force.

  8. The reglator has made such a pigs ear of the matter – re-writing the dictionary definition of independent (as consumers and solcitors know it) that this move can hardly cme as a surprise.

    Next year I will be restricted but also whole of market in terms of my ability to use any company I wish.

    In my view this is ‘independent’. It is only thr FSA that disagrees.

  9. Regulatory Jewels 12th July 2012 at 5:34 pm

    Lets not loose sight of what is an equally important point – the Adviser’s capability. Surely as an Accountant or Solicitor referring to ANY type of Adviser is it not foolhardy to take comfort in the ideology that referring to an ‘Independent’ adviser makes everything OK? What about Due Diligence? What about satisying yourself that the Adviser has the same values and the ability to provide the level of service that you would expect for your clients? Independence perhaps isn’t Utopia for Solicitors and Accountants after all when you think about this angle.

  10. I find myself agreeing with both Gill Cardy AND John Blackmore. This may surprise people as it appears opposite views, BUT. Whilst I believe as a generalist IFA (with Equity release and LTC quals, but not pension transfers). I consider myself a generalist a solicitor can refer to knowing I have enough knowledge to refe on to a restricted (whole of market or tied specialist).
    The SRA considering whether to allow solicitors to introduce to restricted advisers is a NON issue as if they decide only to allow IFA introductions, they protect themselves.
    If they allow introductions to restricted advisers, it will mean they will need to udnertake extra due diligence to ascertain the restrictions of the restricted adviser and risk legal challenges of giving regulated advice in error if they fail to properly identify an advisers restrictions. This is the SRAs dilema, not ours as IFAs.
    As others have saqid, people buy people. The arguments will occur if they buy the person and subsequently find someone else they trusted failed to clearly identify the restrictions of the person they were introduced to.

  11. Gareth Fatchett 14th July 2012 at 9:04 am

    The legal profession is going to an equivalent FSA land.

    We have principle based regulation now.
    We have our own Ombudsman Scheme.
    We are now muddying what is “independent” and what is not.

    It would be a crying shame for us to ruin our independence by being able to refer to tied people. That misses the point and de-values our brand.

    That said, I do fear the worst.

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