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Law Society urges solicitors to ignore SRA restricted stance

Ponzi Scam Fraud Gavel Law 480

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.”


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. SJP: ‘Here have this brown envelope’
    SRA:’Thanks very much’

  2. Solicitors seem wholly concerned with distancing themselves from responsibility rather than encouraging appropriate and positive action.

    If memory serves the ‘misselling scandals’ which they fear so much, were perpetrated largely in the IFA community (endowment, pension opt-out) and or bank counter personal in the case of CPI most recently.

    Lest we forget the legal community has never acted negligently and against the interest of their clients of course. Just ask anyone whom has purchased a property in the last 20 years.

    Perhaps solicitors should withdraw from advice as to give advice is to expose it to future potential scrutiny and redress if incorrect. Perhaps they should just do as they are told in other words. In which case why use them? Make a living out of that if you dare.

  3. sounds familiar… a professional body that tells the regulator they are wrong…

  4. It’s really quite simple. Solicitors should always refer clients to an IFA to ensure that their client can receive independent professional advice and solutions on all matters relevant to that client. If the existing rule is diluted to encompass referrals to restricted advisers, the traditional standards of impartiality also get diluted. There is of course no rule for the IFA not to refer to a restricted adviser in turn, if that is the correct solution for the client so DFMs for example will need to court IFAs as much as other professional connections in future. We are rightly proud to call ourselves independent, so why shouldn’t the legal fraternity not do likewise?

  5. A lucid analysis on why Independents are still the ‘Gold Standard’.

    You now have it from the horse’s mouth.

    ICAEW next.

  6. Yes, ‘Gold Standard’, so much so the regulator no longer wants it as it considers the present system a risk, hence RDR.

    More of a veneer perhaps rather than solid gold? The trouble with veneers is they disguise the truth underneath.

  7. Des Hudson proves the truth of the phrase “Better to keep your mouth shut and be thought a fool, than to open it and prove everyone right”.

    He gives no evidence to support his claims – because there is none. He should stick to talking about things he understands, although that might mean taking a vow of silence.

  8. In the past business has been passed by solicitors to a well known brand of tied advisers. Will this change ?

    Most advisers although they wish to be independent will probably like me end up as whole of market but restricted in product.

    SoI am not offering EIS VCTs, ETFs & other more risky products as my clients are not risk loving high net worth individuals.
    If I met one I can pass the work to a specialist colleague in the business.

    To be independent should you also have to be qualified for long term care & Equity release ? Most advisers are not.

  9. Anon 4:14

    Has the SJP Champaign given you indigestion?

  10. Too many vested interests conveniently ignoring the facts.

    At the moment there are specialist investment advisers who can legitimately refer to themselves as independent because they are not tied to a provider/s. The FSA have changed the definition of independence so they will be restricted post RDR. Why aren’t the Law Society warning their members about these people now if that’s such an issue post RDR?

    An adviser post RDR does not have to give advice on equities, corporate and gov bonds, IHT, long term care or pension transfers… but can still call themselves independent. The FSA have busted the term independent, get over it, move on.

    Presumably, IFAs would be happy to be told that they can’t refer their client to a specialist will writing solicitor because the client may have other legal needs? They have to go first to a generalist. Really? In an adult world the professional adviser and their client will have a conversation and make their own minds up.

    Grow up.

  11. Now, if I am a solicitor and I refer someone to a whole of market independent, who is duly authorised and qualified and that advice turns into a complaint, because he or she failed to discuss certain product areas then I can revert to the adviser, as it starts and finishes with him or her. They were whole of market and if they fell short in their remit, then I have no control or influence over this.

    If I refer to an adviser who is not whole of market, on the basis of trusting that person to refer out of area advice to a third party and they fail to do so, then I become a party to this failure, for not allowing my client access to whole of market advice through a suitably qualified professional.

    While I can perhaps then claim off the adviser, for not fulfilling their obligation to me, it is of little comfort.

    You see, it is not about who is better than whom!

    If I am not to benefit from such an arrangement financially and put in jeopardy my client relationship, then why would I want to fall over myself to cosset favour with any adviser, let alone one who is not whole of market?

    So that’s the rub…It’s not about what level of advice the client may receive, it’s also about what potential there may be for any referral backfiring and becoming a complaint…Goodness knows there are enough complaint firms out there and there will be many, many more, probably manned by ex-advisers when RDR is upon us.

  12. @Steve

    Your narrative highlights the problem.

    Post RDR I can be whole of market as an investment specialist but that makes me restricted.

    Post RDR I can be independent and not offer advice on shares, corporate and govt bonds, long term care, IHT and pension transfers.

    Why shouldn’t a grown up, competent solicitor who has discussed with his grown up, intelligent clients their investment needs, refer to the above restricted adviser?

    Provided the adviser is authorised by the FSA, it is difficult to see how any liability could arise on the referer. Has any adviser ever been found negiligent for referring to a solicitor or accountant who subsequently screwed up? I cannot find anything in the legal databases I use but would be interested if anyone is aware of any.

    If independence is so good it will stand on its own two feet. It is ironic that the advisers who are up in arms about this are also the ones who are complaining about regulation and being told what they can and can’t do.

    The ire should be directed at the FSA (though influenced from the EU) for creating a definition of independence that simply doesn’t work in the real world. Indeed, it is not clear, could certainly be misleading and, at best, the jury is out on whether it is fair.

  13. @ Grey area – I agree with you. The FSA are twisting the English dictionary. The reverse of Restricted is UNrestricted, not Independant.
    What is the dictioonary opposite to Independant? Oh yes, tied….
    Your exam of long term care, IHT and pension transfers is very good. I have the LTC qualification, but I bet very few pension specilaists have and vice versa. So I agree, why should you be told you are not Independant, when you are, simply that the areas you specialise in without referring elsewhere are restricted in that whilst you COULD give advice on otehr ereas, youd have to first do an extra exam to do them?

  14. The SRA has recommended that solicitors be allowed to refer clients to any financial adviser, regardless of whether or not they are tied to a particular institution. The SRA state that “there is a risk that only allowing solicitors to refer to advisers deemed “independent” might not ensure the best outcomes for clients.”

    How on earth, and in what circumstances could “only allowing solicitors to refer to advisers deemed “independent” NOT ensure the best outcomes for clients”?

    Apparently the SRA consider that allowing Solicitors to succumb to external sales pressure by providers with a vested interest in selling one particular product, will be more in the best interests of the Client than referring them to a truly independent adviser? Since when has restricted advice been a better choice for Clients than independent advice? And what, pray, is the point of having a Consultation at all, if the Body which is allegedly “consulting” is free to ignore the clear preference expressed by a majority of the respondents to the Consultation (which was for Option1) and to confirm that they will go for their own preferred option (Option 3) which received a minority of the preferences expressed by the respondents.

    Why hold a consultation in the first place? What a farce and a whitewash! And now the Solicitors Regulatory Authority is giving Solicitors specific advice – which the Law Society is advising them to ignore – GREAT!

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