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.