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Ian Muirhead: Solicitors have most to lose from SRA move

Ironically, the Solicitors Regulation Authority is about to determine the future shape of the financial advice market. Many IFAs remain undecided as to whether to opt for restricted status under the FSA’s new classification, having taken the view that the terminology will be unintelligible to consumers, and the deciding factor may well be the question of whether becoming restricted would disqualify them from working with solicitors.

The SRA’s Code of Conduct currently states that if solicitors’ clients require financial advice, they must be referred only to an independent intermediary. This term does not appear in the FSA’s vocabulary, and consequently the Code needs to be changed. However, making the required change is not straightforward, because the FSA has invented a new contrived definition of independence which no longer accords with the commonly accepted meaning of being free from third party influence.

The SRA is set to consult the profession on the issue and, In a further irony, the date on which the SRA board met to discuss the terms of the consultation was 4 July – Independence day, when the Americans were liberated from the influence of the British. Predictably, prominent proponents of the multi-tied sales proposition have taken the opportunity to suggest to the SRA that the easiest solution would be to abandon the commitment to independence and permit solicitors to refer clients to all and sundry financial advisers. This would also accord with the principles-based regulation to which solicitors are now subject, which focuses on objectives rather than hard and fast rules.

The consultation posits three alternative options: to maintain the prohibition against solicitors referring other than to independent financial advisers and to overlook the conflicting terminology; to abandon the prohibition; or to abandon the prohibition but require solicitors to consult with clients before making referrals, so as to ensure that the proposed referral would be in clients’ best interests.

One would like to think that independence in its true sense, being a core principle of the legal profession based on the avoidance of conflicts of interest, would be the default option. However, the Legal Services Act has ushered in a new permissive era for the profession in which the old shibboleths are taking second place to commercial interests, and the regulators seem blind to, or unaware of, the gulf which exists between new model financial advisers and product salespeople.

If the vote does go against independence, it is likely to be the solicitors’ profession which incurs the greatest damage. Solicitors’ reputations will suffer from involvement with the less scrupulous elements in the industry, and the Solicitors’ Compensation Fund will find itself saddled with similar levels of claims to those afflicting the FSCS. It is even possible to envisage product providers buying solicitors’ practices as sales outlets.

For IFAs, the decision as to which way to jump may depend on the vote of solicitors whose understanding of the financial services industry is in most cases limited. The saving grace is that regardless of the way the vote might go, there will always be a major group of financial advisers who are independent in the true sense of the word, regardless of how the FSA might choose to classify them, and whose empathy with solicitors’ professional ethos will give them primacy in the professional connections market.

Ian Muirhead is managing director of Sifa


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Who are the ‘less scrupulous elements in the industry’?

    If you have any integrity you may care to name them and let them defend themselves to the accusation.

    Having been an IFA for 23 years I have seen rotten apples across all sectors of the advice market.
    IFA’ s are no exception.

  2. I think Ian has an agenda within the name of SIFA and that is fine, but I think perhaps the reference to the less scrupulous parts of the industry (and indicating that only solicitors can lose), is a little disingenuous.

    Surely solicitiors as a profession by their own definition and reputation will take the appropriate steps to ensure the quality of the individuals/firms they refer to. Poor advice is not excluded because you carry the label ‘independent’, and the reverse therefore must be true that quality advice can be obtained without the tag independent.

    We all know it is in many ways ‘just a name’ because as a restricted adviser you can be whole of market within the product suite you operate and you do not have to be part owned or influenced by any third party. Indeed there is nothing excluding an independent from being part owned or potentially influenced. Surely Ian understands that business ownership and the ethos and way in which a business functions and operates are two seperate things and whilst a common accord is beneficial it is not essential. Are we saying that there are currently no IFA businesses that have product provider shareholders? Are we sure there won’t be in the future?

    The SRA is coming up to date and perhaps SIFA should acknowledge this in a balanced way and promote the small benefits of an ‘independent’ (being very much driven by niche type products rather than provider market limitations), rather than suggest anything otherwise may be less than good.

  3. Ian,

    Straight questions. Do you suggest that unless independent, ‘unscrupulous’ will be the experience?

    Do you have a comment about your Compiance Directors comment…..
    “Restricted advisers are serving a master and not their client and this will affect the quality of advice. Frankly referrals of this sort would be inappropriate”

    And can you offer comment from Steve Braidford on this very subject – being the MD of the newly launched restricted adviser option owned by the same parent as SIFA?

  4. Stephen @ Create Wealth Management Ltd 12th July 2012 at 9:58 am

    Let’s make it simple and allow Solicitors the benefit of the doubt; that they are an honourable & intelligent bunch and can make their own minds up with all of the guidance & tools their SRA provides them!

    However, if it turns out they referred a client to a ‘tied’ or ‘restricted’ adviser, or any tyoe of adviser for that matter, which in turn proved to have been detrimental to their client then they should be so honourable and also be financially responsible for any redress.

    I wonder what their PI insureres will say? Maybe their PI providers should have a say in how a referral shoudl be made? Just a thought.

  5. I find the above attacks on Ian’s integrity to be unworthy and, no doubt, full of personal vested interests.

    Ian is raising some very valid points, which should be carefully considered by the SRA before they consider removing the current prohibition.

    Whether my trusted adviser is a solicitor, accountant or financial planner, I would expect them to only refer me to a third party that is legally acting for me, rather than as the agent of a specific company or companies. Furthermore, I would expect their income to not be contingent on the sale of any specific company’s products – ie, truly fee based.

    I fully agree that, at present, ‘independent’ is not a guarantee of impartility or professional competence. This was one of the objectives of the RDR; which, despite many flaws, has acted as a catalyst to improving business models and qualification levels.

    If the prohibition is abolished then solicitors will have free rein to refer clients to all and sundry. In view of recent reported breaches of the present restriction (where a solicitor was found to be in breach by referring clients to St James’s Place), it clear that many solicitors are either ignorant, or wilfully breaching, their current obligations.

    Should the prohibition be abolished then I fear that many solicitors may be subjected to sales spiel and sophistry and may end up doing serious harm to their, and their clients’ interests.

    If the prohibition is abolished, then one can only hope that, despite ‘principles-based regulation’, solicitors will have a clear obligation to provide details of the adviser’s regulatory status, who they act for and any share of fees/commission that will be involved.

    It is ironic that, at a time when financial planners are moving to a more objective and impartial structure, solicitors are considering such a retrograde step.

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