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.”