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