A number of factors need to be considered when financial advisers seek to establish a relationship with a law firm.
Association should be sought with law firms whose business gives rise to the need for financial advice. In England and Wales, the Law Society's directory and website at www.lawsociety.org.uk show the types of business undertaken by each firm. The Scottish Law Directory, published by T&T Clark, contains similar information.
The longer a law firm has been established, the greater its involvement in trust, tax and probate work is likely to be. Newer firms lack the benefit of this legacy and may be obliged to concentrate on areas such as litigation, family, property and criminal work, which create less need for financial advice.
In a financial services market which increasingly revolves around the needs of high-net-worth clients, it clearly makes sense to target those firms which are likely to have such clients on their books.
Some solicitors are well placed to refer clients for financial advice but are by nature disinclined to do so. There is usually no point in pursuing an unwilling prospect.
It is not necessarily the most senior members of the law firm – the senior partner or managing partner – who are the best points of contact. Those involved in a managerial role may have less client contact than their colleagues.
Relationships tend to be between individuals rather than organisations and each partner tends to be a law unto himself. Few individual solicitors can speak for their partners.
Relationships between professionals are best forged by personal contact in a professional or social environment. There is no substitute for local connections. Mailings may do the job but all too often are inept or perpetrate solecisms which are likely to put up the backs of the recipients.
Most important of all, financial advisers must demonstrate their professional credentials and give the solicitor confidence that the relationship is one which will be mutually beneficial and in the interests of the client, the parallel being with other professionals with whom the solicitor deals, such as barristers and accountants.
It is important that solicitors should feel comfortable that the quality of the financial advice received by their clients will reflect well on themselves, for having recommended the source of the advice.
Making the case for independent advice
Establishing an authorised third-party relationship with a law firm has two stages -persuading the solicitor of the merits of referring business to an ATP as a general proposition, then persuading them of the merits of referring to the particular ATP sitting across the table. In practice, the two tasks roll into one.
By outlining the advantages of working with ATPs in a way which demonstrates a knowledge and understanding of the need for financial services within a law firm and the cultural environment within which such services will be provided, the prospective ATP is at the same time selling himself and gaining the confidence of the solicitor.
Typical of the sort of questions which may be raised and the answers which might be given are as follows:
Why should we get involved?
The work of the financial adviser complements that of the solicitor to their mutual benefit and that of the client.
Frequently, the common ground is tax, which determines the structure and therefore the suitability of most investment products. But in fields such as matrimonial work, trust investment and advice to the older client, the solicitor's advice will often be incomplete without input from a financial adviser.
Can't a stockbroker provide the advice?
Stockbrokers cannot usually offer financial planning advice and confine their services to portfolio management, with a bias towards investment in individual securities. This is likely to be unsatisfactory for many clients, whose investment returns can be improved significantly by taking advantage of tax-efficient investment vehicles, which also have the benefit of reducing risk by providing wider diversification.
What is in it for us?
Firms are entitled to expect to be rewarded for their referrals but there has been a tendency for IFAs to over-reward their introducers, some making payments of up to 50 per cent.
Such payments are grossly excessive and will in future be impossible for referring firms to justify to their clients. Payments of 20 per cent or exceptionally 25 per cent are more than adequate. Firms which ask for more should be reminded of the requirement under Part XX of the Financial Services Act 2000 to justify their remuneration to their clients.