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Nic Cicutti: The dangers of the SRA’s restricted move

A mate of mine is buying a field with a brick building on it. He wants to use the structure to carry on a small artisan woodworking business. It ought to be a simple transaction: the owners want to sell, the money is all there and planning issues, if any, are not insurmountable.

Yet the transaction has now dragged on for many weeks, the paperwork mired in a solicitor’s office and going nowhere fast. The two sets of lawyers appear to be dawdling along, spinning things out, taking their time, ignoring increasingly frantic calls from each respective set of clients. As my mate puts it succinctly, they are both “crap”.

I have a lot of sympathy for that view. My own direct experience of the legal profession over the years suggests the level of skills and knowledge of legal matters on the part of some solicitors, not to mention basic efficiency, is shockingly bad. Okay, some are very good, but many are not.

What is more, as of last week they will be given a further excuse to display their complete ignorance when it comes to meeting their clients’ needs. The Solicitor Regulation Authority, which oversees the way its members practice, has agreed to allow solicitors to make referrals to restricted advisers.

The apparent reason for deciding solicitors should no longer have to make referrals to IFAs is that the SRA board believes the term “independent” is no longer appropriate.

Earlier this year, the SRA board consulted on the three options: keeping the current rules, which state that referrals can only be made to independent advisers; abandoning the requirement for independence altogether; or allowing solicitors to refer to “restricted” advisers agreeing it first with their clients.

The SRA’s “consultation process” was interesting in and of itself. When it published its document some months ago, it had already indicated which way it wished to go – and that was in favour of abandoning a need for solicitors to refer only to IFAs. So for anyone to be surprised by its outcome would indicate a startling degree of naivety about how this decision was eventually arrived at.

What makes this “consultation” even more intriguing is that, as Money Marketing reported, the majority of respondents argued against the proposed change. Why bother asking people for their views if you then refuse to take them on board?

The final aspect of this change is that its rationale, as initially explained by the SRA board, was that “it reflects the possibility that under the new regime introduced through the FSA’s retail distribution review, many firms which are currently described as independent financial advisers or independent intermediaries may not be able to label their advice as independent because they will not, for example, advise on a sufficiently broad product range”.

The fact that, as surveys are increasingly beginning to show, the overwhelming majority of current IFAs intend to retain their independent status after December 2012, does not appear to have impacted on the SRA’s decision one jot.

Let’s also deal with the argument, advanced by one or two soon-to-be restricted advisers, to the effect that it is not they who are abandoning independence but the FSA that has moved the goalposts.

That sounds fine – except that the new SRA rules potentially leave the field open for solicitors to refer clients not just to former IFAs but to multi-tied salespeople. No wonder some large national firms that have never had anything in common with genuine independent advice are salivating at the prospect of winning business from gullible lawyers.

All of us should at this stage pay tribute to two organisations that have maintained a valiant rearguard battle to maintain the SRA’s original principles in favour of independent financial advice. One is Sifa and its veteran managing director Ian Muirhead, whose articles on the subject have appeared in countless magazines and websites over recent months.

The other is the Law Society, whose chief executive Desmond Hudson was quoted in MM calling for solicitors to ignore the SRA’s new rules: “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 mis-selling scandal that has plagued the financial services industry in recent times.”

So what happens next? Maybe very little: over the years I have spoken to many IFAs who tell me that obtaining referrals from local solicitors has always been nigh-on impossible. To that extent nothing will change, probably.

Yet, as I have mentioned, some pretty large businesses with massive marketing muscle and no commitment whatsoever to independent advice are likely to move into this market. Once they get their foot in the door with a few dozen legal firms they can use that “success” on other prospective targets.

The ultimate irony is that trade bodies and so-called “restricted” advisers who junked independence will be by-passed by those for whom IFA status was always irrelevant.

Now that those trade bodies have abandoned the field of battle, it will be up to genuine IFAs to ensure solicitors remain true to their clients’ genuine interest and complain loudly if they don’t. Sadly, no-one else will do it for them.

Nic Cicutti can be contacted at


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There are 19 comments at the moment, we would love to hear your opinion too.

  1. Nic,

    You really do not get it, do you?

    I need some brain surgery, so let’s go and see a dentist? That does not really work, does it?

    Advisers, presumably like lawyers, come in all colours, shapes and sizes. And some are probably ‘crap’ too. Independence does not alter that reality, in exactly the same way as being a solicitor you can still be crap.

    If you are restricted and a specialist, as my firm is, (and very good in our space – and I would say that) it seems to me that we can add considerably more value to clients that being a ‘crap’ or good independent in the space in which we specialise.

    The debate has moved on and the pragmatists at the SRA have recognised this. Time to grow up! I look forward to a burst of common sense from the ICAEW and ACCA.

    Happy hunting.

  2. There will no doubt be those posting the usual vituperative comments on Nic’s insights. Presumably these will be the people who have/will chose to go restricted. This whole argument rather reminds me of the Aesop’s fable of the Fox Without a Tail. Their backup argument when all else fails is to plead industry unanimity.

    Nic’s article cogently and logically points out why Independence is worth pursuing and why it will remain the top of an ever increasingly mired pile. I can only imagine that his last paragraph was a paean call for IFAs to join the only remaining body that has been set up to promote their interests exclusively – the IFA Centre. Forza Gill Cardy!

  3. Maybe it’s something in the nature of regulatory bodies that causes them to have lengthy consultations but then ignore the feedback and just do what they always intended.

    @John, in my opinion your comments may have some/alot of validity but this would be more the case if you identified yourself and your interest would be more apparent.

    The ‘Happy hunting’ sign off was a phrase used by a well known and severally morphed direct sales force that is currently being referred to as being ‘upmarket’. Is that you?

  4. Can somebody explain the difference to me regarding the potential situations below.

    A) Client approaches an IFA who is able to transact any business with any company (subject to his or her capabilities).

    B) Client approaches a ‘restricted whole of market adviser’ who upon finding out that their requirements include a service or product that he/she does not offer passes the client to another WOM or IFA who possesses the necessary skills.

    C) Client approaches a restricted adviser who cannot assist.

    In my, possible muddle mind, A and B produce pretty much an identical outcome whereas C provides the outcome we all know from the old Tied v IFA situation.

  5. My View- The only way that Financial Advice on products and services should be offered to the general public from all sources should be the IFA way.

    That way, no consumer need fear they are being advised without consideration of the “relevant market”

    There! Job Done!

    Trouble with that view is that the vested interests of banks and direct providers figure in the FSAs mindset take precedence over all common sense solutions to the future needs of consumers.

    That would be truly revolutionary, unlike the mess the RDR is turning into, with restricted, tied, IFA choices for consumers.

    AND if the consumers could be given a choice of Commission (limited by a max cap agreement) or Fees then we would really imbue the consumer with confidence in our industry


  6. Nic, you are right, some solicitors are crap and others are very good (and I am a solicitor, so I have nothing against the profession as a whole).

    But surely the solution is to raise the standards of solicitors, including making sure that if they do refer their clients to financial advisers, they do that on an informed basis. It’s not a very good reason to maintain a restrictive practice, which is what the current rule is.

    Also, a consultation is not an election. It’s the quality of the argument that matters, not how many people make it.

  7. Its is clear that the SRA has taken a leaf out of the FSA book when it comes to consultations.

    We will ask you your opinions but ignore them as we are much more intelligent than you little people who actually work.

  8. @alan i see your point,but you use ckient approaching adviser as an examplerather than bejng reccomended.i think Fsa have made apigs ear od re polarisafionsnames and can understandwhy sra have done this, but i think itneeds a rethink by FsA asap.

  9. The FSA and SRA are working together. The FSA’s goal has been to have a few large ‘financial adviser’ firms to regulate and remove the financial services ‘cottage industry’.

    All the ducks are in a row now. The RDR will remove significant numbers of small businesses leaving the likes of Towry and SJP to take the pickings. Whatever your view of these firms (and mine is far from positive) they are large and easy to regulate. They also have big pockets and can pay up if things go wrong.

    The SRA and FSA don’t listen to consultations because their goal is clear. The end of the small company (whether FS or legal).

    And if you don’t believe me please look at the direction of regulation over the past five years.

  10. It is more about culpability for the consequences of the referral rather than quality of the advice in my view.

    Both sets of advisers have access to similar products (Bonds, UTs’ ISAs’ Pensions, Term Assurance, etc.) and supporting expertise (trust planning, etc) and therefore it comes back to cost (AMC’S and premiums) and performance (imponderable to a degree!).

    Talk seems to have it that IFAs’ have access to a basket of golden coins and let’s face it we don’t, although we can perhaps source better mainstream products based on ‘past’ performance and cost.

    If you deal with a legal firm and they like and respect your advice, then there should be little to fear, as long as you state your case and explain the landscape before the fancy packaging arrives from a restricted firm (or another IFA)!

    As an aside, I wonder if we will see any strategic partnerships with legal practice ‘buy-in’s’ taking place…Now that really would muddy the waters!

  11. @ Alan Lakey

    Alan you have almost answered your own question. Only you didn’t define ‘A’ properly.

    IFA (who) is able to transact any business with any company (subject to his or her capabilities).
    You should have added – and can advise holistically across the board on all relevant topics (subject to his or her capabilities).

    So in answer to your question the client who approaches ‘A’ goes to a ‘one stop’ shop and doesn’t have to drag around seeing innumerable different advisers and the client relationship is therefore much more straightforward.

    Your scenario in ‘B’ looks like creating all sorts of conflicts regarding client ownership and logically the restricted adviser would be very careful to avoid recommending an IFA – who could look after it all.

  12. “Hi, I am a restricted adviser”
    “What does that mean?”
    “It means that any financial product solution I offer you will come from a limited range not from the whole of market”
    “Oh, I was looking for independent advice”
    “I see, well the advice and financial planning I provide is independent”
    “I don’t understand I thought you said you were a restricted adviser?”
    “That’s right I am a restricted adviser but I am also a specialist”
    “Good I was looking for specialist advice but I wanted it to be independent advice”
    “You don’t seem to be listening my advice is independent”
    “But you said you were a restricted adviser”
    ” Kind of confusing isn’t it let me start again, I am a restricted adviser who provides specialist independent advice but with restricted financial solutions”
    “Yeah that sounds clear…….”

  13. Seems to me the key issue will be that the referring solicitor will inevitably retain liability for ensuring that any restriction the financial advisory firm has, will not impact on the quality of the end product to the client whom he/she refers.

    If the solicitor is adequately knowledgable and comfirtable with that, then fair enough I suppose – although I wonder how many actually will be.

  14. What they are really concerned about is the solvency prospects of IFAs,generally,going forward. Who is likely to be left standing to pick up the tab for misselling,arch cru,key data,etc.?
    Or are their clients going to have to rely on FSCS(maximum redress 55k).
    Unfortunately,I don’t blame them!!!

  15. While I understand the points made it could just as easily be argued that the move will bring about positive results.

    Perhaps the move will enhance the due diligence used to assess the suitability of the financial adviser.

    If the SRA thinks allowing restricted advisers to work with solicitors may be positive then they should back it up with helpful material to it’s members highlighting the importance to ensuring any third party used has been properly qualified.

    That is the way to better client outcomes.

  16. @Nick Bamford

    Isn’t it sad that the type of conversation you posited will likely be a regular occurrence?

  17. @Harry Katz: Thanks for the kind comments, but I wasn’t being a Gill Cardy proselytiser (she doesn’t need me to do that). Just pointing out that restricted advisers hoping for new business from solicitors in the wake of this decision may find themselves bowled over in the rush from the same group towards other providers of so-called advisory services.

    It’s all so obvious I’m surprised Alan Lakey can’t spot it.

    On reflection, maybe I’m not that surprised.

  18. I suggest my vision is 20/20 and yours distorted by the concrete opinions you developed many years back.

    Anybody with a functioning brain can see that depolarisation followed by the idiocy of the RDR has subverted the concept of independence.

    I pushed and supported independence for 26 years but when faced with titanic stupidity by an unaccountable regulator that can tick boxes but not actually draw them you sometimes have to accept the change.

  19. Nic, you are so out-of-date. Advisers are people. “Restricted sales people, salivating at the prospect of referrals”.
    Do you actually know any Restricted Advisers Nic? no I thought not. Your language is childish & ignorant. The IFA v Restricted will be a personal decision for each individual. Financial Advisers don’t simply become salivating salesmen just because they choose to go Resticted. You just can’t throw labels around as insults.
    Post RDR nobody is salivating about any business!
    The majority of IFAs have moved on, Nic GROW UP!

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