The Law Society has urged solicitors not to comply with the Solicitors Regulation Authority’s new rules allowing clients to be referred to restricted advisers.
The Law Society, which acts as the professional body for solicitor firms, argues the SRA decision to relax the requirement to refer clients to IFAs for investment advice could expose solicitors to negligence claims.
Chief executive Desmond Hudson says: “The inevitable consequence will be solicitors may become more open to negligence claims based on these recommendations or referrals, with the profession as a whole becoming embroiled in the type of misselling scandal that has plagued the financial services industry in recent times.
“The provision of independent advice has historically been one of the fundamental tenets of the profession. As such we would urge solicitors to disregard the liberalisation of the handbook in this area and continue to only recommend IFAs.”
Hudson argues under the SRA rules solicitors will not be penalised for exercising their discretion about the type of advisers they refer to.
He says: “We urge them to use that discretion to only refer and recommend IFAs to clients to avoid the risk claims.”
The SRA board approved changes to its code of conduct yesterday which would see the requirement for solicitors to recommend clients to an “independent intermediary” to allow them instead to put clients “in a position to make informed decisions about referrals in respect of investment advice”.
The SRA consultation on referrals, launched in July, put forward three options: aligning the code of conduct with the FSA’s definition of independence, removing the rule on referrals, and allowing clients and solicitors to make an informed decision.
The consultation received 62 responses. Of those who set out their preferred option, 26 responses favoured option one, one respondent favoured option two, and 22 responses favoured option three.
The SRA will publish the consultation responses in January, but the Law Society has questioned whether the SRA listened to industry feedback.
Hudson says: “If there has been significant informed opposition to the SRA’s proposals, it will bring into serious question the legitimacy of the consultation process as anything other than a paper exercise conducted for form.
“It is not sufficient to cite an apparent incompatibility with outcomes-focused regulation as an absolute rationale for diluting regulatory safeguards for both clients and solicitors.”