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MM Leader: Legal rethink could be a big factor for advisers

A Solicitors Regulation Authority consultation set to begin in July could have big implications for advisers.

The SRA is to review whether its current guidance preventing solicitors from referring clients to anyone but an IFA for investment advice needs to be updated.

Given the FSA’s new RDR definitions and rules for independent and restricted advice, it is reasonable for the SRA to take a look at its own rules to ensure they still reflect the principles it is looking to uphold.

The majority of IFAs say they intend to retain their status after the RDR, although many have been evaluating the pros and cons of giving up the label. A major consideration has been the ability to retain and grow professional connections. A rethink by the SRA could be an important factor for firms still weighing up their business model.

The SRA’s rules were intended to ensure lawyers did not refer clients on to firms whose advice would be biased or unduly influenced by third parties.

After the RDR, restricted advisers will have to operate under the FSA’s adviser-charging rules, with any payments coming from the client and have the same qualification requirements as IFAs.

Although there are bound to be some questionable business practices which look to breach the spirit of the FSA’s rules in this area, there are also a number of highly qualified transparent adviser firms looking to move into the restricted sector.

They may well be asking the SRA why they will suddenly have to break off the arrangements they have with legal firms, especially given they will more than likely have increased their qualification levels and charging transparency as part of the RDR.

A decision by the SRA will also be needed on hybrid firms which offer independent and restricted advice but cannot call themselves IFAs under the FSA’s new rules.

One of the big problems the SRA is likely to have to tackle is the broad range of firms which will fit into the restricted camp, from a bank’s tied sales force to a chartered and/or accredited financial planning firm which has decided to take the restricted route as they believe this will benefit their clients. Where should the SRA draw the line?

This may be a difficult decision for the SRA to make but one that cannot be avoided as advisers need clarity one way or another.



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There are 7 comments at the moment, we would love to hear your opinion too.

  1. “decide to take the restricted route as they believe this will be of benefit to their clients…”

    How can anyone seriously suggest that restricted advice offers client any advantage. It’s like a brain surgeon saying they only operate on the left half of a brain. They go in for a tumour then have to stop “not my field, I’ll close you up and get a right brian specialist to sort the other side.”

    Decent qualifications are now a given so unbiased, unrestricted, whole of market INDEPENDENT advice is the only issue for clients.

    Having lit the blue touchpaper…

  2. Restricted advice can still be the same as IFA advice is today. Simon, your comparison is not right. A correct comparison would be a brain surgeon choosing not to deal with broken legs.

    I am an IFA and will hopefully stay that way. However, currently I choose not to transact in certain high risk areas but refer to another IFA if that is the case. With RDR, that would not be allowed to be called independent.

    I need to decide if I want to be able to transact in all areas and I suspect the major issue is going to be the cost of PI insurance. Currently, if you say you wont transact in an area, your premium reflects that. If the PI insurer has to cover anything and everything then what are the premiums going to end up being? That could well end up being the key swing in the decision making.

  3. I wondered if someone would play that card…

    In truth it will be for clients to decide which anology they find more compelling. But in 30 yrs as an adviser with the last 20 as an IFA I have always presented myself as a generalist and FS as a single, holistic discipline.

    As the industry continues to consolidate I believe firms with the capacity to advise across all areas will merit the independent title and will use it to their competitive advantage. If they can’t we might as well all become multi tied and therefore restricted.

  4. Independent to the last 31st May 2012 at 1:57 pm

    More likely they are receiving a backhander from a well-known tied agency who used to get the majority of its business from solicitors. Can’t Place the name!

    Sorry I forgot it was a loan.

  5. @Simon

    I’m afraid it’s your analogies that are failing. FS is no more a holistic discipline than law or health. If a subject has sufficient complexity then specialists will be necessary and best practice.

    A one man generalist adviser will have to steer clear of any complex advice issues as it is unrealistic to expect them to have sufficient technical knowledge.

    Specialist advice should arguably be held in higher regard than generalist advice. The current definition of independent unfortunately disallows this.

  6. David, it is an incorrect assumption that in order to remain independent, you have to provide advice on high risk investment areas. Unfortunately, some with vested interests in promoting restricted advice propagate this myth. You may certainly remain independent and continue to refer work to specialists. Please contact Gill Cardy of the IFA Centre to get full details of what independence entails in 2013. I hope that you stay independent and continue to offer a comprehensive whole of market service.

  7. Gillian Cardy 6th June 2012 at 8:53 am

    It is precisely the wide range of possibilities sitting under the title of Restricted which is why the only answer, as the ICAEW is saying, must be for the requirement to refer to Independent to stay in place.
    The problem with the medical analogy is that the solicitor is supposed to have no knowledge at all of what options their client should need – hence the referral to the GP in the first instance … and then it is the GP’s job to determine if more specialist help is required.
    A solicitor referring clients to a restricted and / or specialist adviser has already determined way beyond their non-existent authorisation what sort of advice their clients may need – which is why this would be a breach of client best interest rules. IMHO.

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