The amount of business coming to IFAs from lawyers and accountants could
rise substantially after November 30, when these professionals face the
prospect of direct regulation by the FSA. Many might find it unattractive
to continue carrying out only a small amount of financial advising.
Bentley Jenisson Financial Services managing director Paul Howard believes
this is a big opportunity for IFAs to bring new clients into their business.
Being part of an accountancy-based practice, he expects to have work
referred from solicitors with which his practice has links.
However, opinions on the desirability of close relations with fellow
professionals are divided. While some IFAs rely heavily on introducers,
others see such relationships as more bother than they are worth.
Inter-Alliance is one of the organisations that has set out its stall for
accountants and lawyers. Spokesman Charles Ansdall says: “We see it as
incredibly beneficial. The relationships require time and effort but are
long term and yield great benefit.”
From the other side of the fence, Brooke Christian & Co senior partner
Stewart Brooke says: “To be honest,I find it easier to do without
introductions from accountants and lawyers.”
Differences in remuneration structures can cause difficulties although the
debate on professionalisation is encouraging more IFAs to move towards fees
from the traditional commission basis.
The issue arises when introducers expect to be paid for their
introductions. In Brooke's experience, the relationship with accountants
tends to be more fraught than with solicitors. He says: “They expect us to
give over half our remuneration, when they would themselves find it hard to
do business on half their usual remuneration.”
While the relationship is often described as mutual and reciprocal,
perhaps no one will raise an eyebrow to learn that lawyers and accountants
do not share their fees with IFAs – it is only the IFA's commission that is
up for grabs. When an IFA works on a fee-only basis, the introducer does
not usually get any money.
Commonly, the agreement between IFA and introducer is for 50 per cent of
of the commission of the initial transaction, with a diminishing percentage
for further transactions.
Brooke points out two issues. The first is clawback liability. Second is
the difficulty in determining for how long into the relationship the
introducer is legitimately allowed to claim an interest.
Aifa technical officer Linda Chandler identifies another consideration.
Accountants might want to have access to information that the IFA has to
keep for regulatory purposes.
Chandler says Aifa has not had reports of difficulties or disputes arising
between IFAs and other professionals. However, her advice is for IFAs to
have an agreement in place which covers all the issues that could arise.
Howard says his firm has proper third-party introducer agreements which
have to be ratified by a compliance officer. He emphasises the importance
of good records. “We never lose sight of the fact that a client was
introduced. For instance, we would not recommend they go to see a different
set of solicitors. There is a considerable danger of putting your foot in
it,” he says.
Not only the impending prospect of FSA regulation of accountants and
solicitors but also the Trustee Act has meant an increase in interaction
between solicitors or accountants and IFAs. Often, it can just be a case of
a solicitor or accountant wanting to ensure their client does not fall into
disreputable hands but more usually it is a commercial relationship. For
example, of 700 joint ventures with solicitors and accountants on
Inter-Alliance's books, 535 are on a contractual basis.
An FSA spokeswoman says the FSA is about to send out documentation to
2,500 professional firms which will have to become fully fledged IFAs if
they are to continue giving financial advice. It is not known how many of
them will give up offering financial advice but many IFAs are already
beginning to market themselves to take advantage of what they see as a
Inter-Alliance is running special training seminars to prepare its RIs to
take advantage of this opportunity and is involved in the Association of
Chartered Certified Accountants' IFA introduction scheme. The Law Society
has a similar scheme – Solicitors' Financial Services.
Courts Independent Financial Services partner David Wingar is another IFA
for whom introduced business forms a strong part of his practice. He has
two pieces of advice for IFAs seeking to follow his example: “Be prepared
for it to take some time. The best way is to hold seminars and offer
yourself as an advice practitioner.
“Also, my best successes are when the accountants and solicitors are my
private clients as well.”