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PFS says solicitor independent referral rules may change

The Personal Finance Society has hinted that rules requiring solicitors to refer clients to an IFA for investment advice may be amended post-RDR.

The professional body has published its latest Professional Direction paper which focuses on how it interprets the FSA’s rules on meeting the definition for independence and which firms will be classed as restricted after December 31, 2012.

It mentions the Solicitors Regulation Authority solicitors’ code of conduct, which states that solicitors can only refer clients wanting investment advice to independent advisers.

The PFS says the FSA changes to the definition of independence come on top of the Legal Services Act coming into effect in October. The act aims to make the UK legal market more competitive by allowing non-law firms such as IFAs to link up with solicitors and set up referral arrangements.

The PFS says: “It should be noted that following the introduction of the Legal Services Act there is closer collaboration between law firms and financial planners including the emergence of joint ventures.

“This, combined with the fact that many existing relationships may be jeopardised by the new standards for independence created by the FSA, has encouraged dialogue between numerous stakeholders, which may lead to a change in policy post RDR.

“We will keep members updated with any developments.”

The PFS paper also highlighted instances where the use of model portfolios and discretionary investment services could impact a firm’s independence. It says a model portfolio investing in a number of underlying investments does not necessarily equate to independence, but should be considered alongside other retail investment products when making a personal recommendation.

On discretionary investment services, the PFS says a firm needs to establish whether the service clients are being referred to is restricted. It says: “A referral to a restricted service would not in itself impact on a firm’s independence as it would not be a personal recommendation.”

For firms operating distributor influenced funds, the PFS says independent status could be constrained where a high volume of a client’s investment is held in a DIF, where certain minimum investment in-flows need to be met to ensure fund availability, or where continuing in-flows need to be met to ensure the fund is viable.

The PFS adds: “It is possible to envisage a firm maintaining its independent status subject to it ensuring that any real or potential conflicts of interests are managed effectively.”


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There are 4 comments at the moment, we would love to hear your opinion too.

  1. And this is simplyfying the advice to the public how? I see yet another wave of administrators and QUANGO`s in the distance. Financial services will eat itself eventually!

  2. Why don’t they just close us all down. It’s this death by 1000 cuts I can’t stand.

    I think we all realise by now that we can’t make this work long term without a significant change in regulatory policy.

  3. The quality or relevance of financial advice appears to be irrelevant in the assessment process. Only the process matters.
    Who can provide any researched evidence that independent advice is “better” than non-independent advice?
    Put Regulators in charge of an industry and all you get is a massive rule rule book and dysfunction. That is what we now have.
    The Solicitor’s rules are there to protect solicitors, not clients, thus a potential conflict of interest.
    If the solicitor has arrived at the conclusion that financial advice is required, why pass on the client to an IFA? Are solicitors saying that only IFAs have the required level of expertise in this area, and that they are significantly better than Solicitors at providing the advice. If this is so, why are the FSA so concerned about the current level of IFA qualifications? If the FSA are right that qualifications are too low then lawyers are being instructed to make inappropriate recommendations to clients. Is this ethical?
    Accountants are pretty much in the same situation. So, by inference, IFAs are already better trained than Solicitors and Accountants – and the FSA is wrong on the matter of qualifications. There is a severe case of dysfunction in this process, mainly caused by the terror of regulation.
    Or is it the assumed intention that the lawyer or accountant determines the need for a particular financial solution, that is, provides financial advice, and wishes an IFA to implement the product. In this case there would be some logic in the rule, since an IFA is assumed to have access to the whole of the market. However, before any adviser can make a recommendation on a product there has to be a process of fact find and advice, that is, a duplication of the work undertaken, and probably charged for, by the professional making the introduction. So the client pays twice – especially under RDR. Is this ethical? Is this practical? Or is this merely dysfunctional?
    Someone, somewhere has to stop this stupid merry-go-round created by a dysfunctional regulator, and determine what is right for the client. At the moment the client is the lowest point of the food chain, and that cannot be right.

  4. PFS shows true tied colours 7th September 2011 at 4:57 pm

    Here we are the PFS showing its true anti IFA colours as if this wasn’t the first time. Consider how they a promoted RDR and the CII examination fee machine without a scrap of evidence of consumer benefit. Fay Goddard being the PFS High Priestess.

    If you are an IFA and still a fee paying member of this organisation then shame on you!

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