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Sifa: Crunch time for SRA over IFA solicitor referrals

Guidance issued by the Solicitors Regulation Authority in July 2009 makes clear that when solicitors refer clients to financial advisers, such referrals must be confined to Independent Financial Advisers. The guidance reads: “The SRA is aware that some law firms have been approached by multi-tied and tied advisers seeking to enter into restrictive arrangements to provide financial services to the law firms’ clients. Firms must always act in the best interests of their clients. This means that they must refer clients to Independent Financial Advisers for investment advice.”

The underlying principles have been carried forward in the SRA Code of Conduct 2011 but the July 2009 guidance on client referrals is under review in the light of the revised stance of the FSA on independence. The board of the SRA is due to meet on July 4 to decide whether the guidance should be carried forward.

The FSA’s re-definition of independence will place greater emphasis on the need for independent advisers to be able to advise clients on a comprehensive range of retail investment products, and this has given rise to concerns that some IFAs might relinquish independent status in favour of the alternative, which the FSA now refers to as restricted advice. This has provided the cue for some national financial services sales organisations, which are currently excluded from solicitors’ referrals, to suggest that there may be insufficient IFAs to service solicitors’ needs after January 1, 2013.

Such fears (or hopes, as far as the multi-ties are concerned) have now been largely allayed. The FSA issued a guidance consultation in February which provided reassurance in relation to the whole of market requirement. Current predictions are that at least 80 per cent of IFAs will remain independent.

Independence is a core tenet of the legal profession and the only apparent reason why the SRA might consider abandoning the requirement is that the stockbrokers’ trade association, Apcims, has argued that its own members, most of whom advise principally on and arrange securities portfolios, might wish on occasion to include in their portfolios retail investment products on which they are not qualified to advise. However, there would seem to be no good reason why anyone who advises on such products should not be required to obtain the same qualification and be subject to the same whole of market requirement as the IFAs for whom these products are the principal investment media. It is of course likely that some multi-tied product providers are lurking among the Apcims membership.

The FSA has decided, in the interests of consumers, to distinguish between advice which is independent and advice which is influenced by third party relationships. It would be highly ironic if the SRA, the supposed guardian of solicitors’ professional standards, was to decide to ignore this distinction. It would also represent a sad rebuff to the many IFAs who have adopted a fee-based professional business model so as to be able to work with solicitors, complementing and enhancing solicitors’ own client services as the profession moves into the multi-disciplinary era.

IFAs are urged to write to the SRA chairman Charles Plant registering their support for the retention of the prohibition against solicitor referrals to non-independents. Please write to: Charles Plant, chairman, Solicitors Regulation Authority, Ipsley Court, Berrington Close, Redditch B98 0TD

Ian Muirhead is director of Sifa



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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Ian’s points are well made, and his concerns are perfectly illustrated by a related article on this website (“Solictor struck off after referring clients to tied adviser”).

    Clearly there are sales organisations that will stop at nothing to develop professional referrals (including making loans to impoverished solicitors!), regardless of the current SRA rules (and a clear conflict of interest). Consequently, any relaxation of these rules will represent a clear concern to IFAs, Solicitors and their clients.

    Therefore, I would strongly urge all readers to act on Ian’s suggestion and register their concerns with the SRA without delay.

    My letter is on its way!

  2. Ian Muirhead – Current predictions are that at least 80 per cent of IFAs will remain independent.
    For the record and to enable clarity, please advise in what context you have made this statement.
    Is the 80% quoted from today or say from 2000 or 2005, 2010 but better than that, please can you perhaps clarify the numbers from when RDR was announced, then we can put your figures and column into perspective.


  3. So how does this leave, for instance, St James Place who seem to be still implying that the SRA will permit Solicitors to refer to them for investment advice? They are not independent and how wil the SRA view Law firms who or are referring to firms of this ilk?

  4. OK, I see, but how many IFAs are recommending investments/funds from a platform portfolio which they are supposed to review. I know many for example, calling them selves independent and consistently making their recommendation from an insurance company platform.
    Many of the “80%” I would guess do not have an investment committee or the skills or technology to review investments/funds.
    So lets be honest with ourselves have we ever been Independent is there such a thing!!!

  5. As always, the readers’ comments above are split down partisan lines – independent v tied/SJP.

    What Anon 2.22pm totally fails to appreciate is that a solicitor cannot meet their due diligence obligations to their client by merely picking an IFA at random.

    Yes, it is true that many IFAs lack expertise or qualification in active management (as do all salespersons). However, it is for the solicitor to ensure that they only refer to appropriately qualified and experienced firms.

    Variation in the investment ability of IFAs is not a justification for letting tied salespersons pitch. It should be remembered that the criteria for professionalism is; objectivity, qualification and expertise.

    In answer to Anon 2.22pm’s presumably rhetorical question: yes, there is such a thing as independence, and there are plenty of independent firms who can demonstrate professional investment ability – unlike tied sales people.

  6. Ian’s comments are brash and totally miss the point: what is best for the client. The “IFA”
    Sector has migrated towards using technology playtforms and model portfolios to provide an efficient and relevant consumer service. It is a move away from researching the whole market for every case which is inherently inefficient and shifts the focus away from what is really important: the client and their goals.

    The SRA should make a pro-client choice which would enable solicitors to recommend whoever can provide the best client solution.

    Ian Muirhead – it’s time for you to retire

  7. Does this only apply to investment products? What about protection products?

  8. The 80% figure is necessarily anecdotal, based on press surveys, but taking account of the comfort provided by the FSA’s Guidance Consulation 12/3. SimplyBiz report that 93% of their members want to remain independent (though less than this figure may actually qualify).

    As regards general insurance, this is excluded from the SRA requirement for independendce. One has to remember that solicitors are involved in arcane general insurances, such as insurance for unoccupied property, for which there are very few providers.

  9. This is absolutley ridiculous. Most IFA’s work within a “panel” of 9 – 15, and although have the title of Independent, rarely look and research whole of market.

    Can we safely say that an IFA knows everything about every investment offering on the market?

    Can they distinguish between them all, providing sound robust reasoning for why they have recommended what they have and not chosen the rest of the market?!!

    I see no benefit at all in restricting referrals to the IFA market…. surely it should be in the best interests of the client to have a choice and TCF!!!

  10. Alistair Cunningham 15th June 2012 at 3:41 pm

    Why so many Anonymous posts?

    We intend to be independent, but also think Muirhead has a singularly blinkered view. Far more important is legal practices doing proper due diligence on qualifications, specialisms, complaints history etc.

    Just drafted a submission to the SRA.

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