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