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SRA formally launches IFA referrals consultation

The Solicitors Regulation Authority has formally launched its consultation on whether it should relax rules which require solicitors to refer clients to IFAs for investment advice.

Money Marketing revealed in May the SRA’s plans to consult on changes to IFA referrals, ahead of a board meeting to approve the consultation on July 4.

The consultation has now been approved and has been published on the SRA’s website.

Currently the SRA Code of Conduct states if clients are likely to need advice on investments they must be referred to an “independent intermediary”. The SRA is consulting on whether to amend this requirement in light of confusion around the definition of an independent intermediary. It has also been argued the rule pre-empts solicitors’ own judgement about appropriate referrals.

The SRA is considering three options for revising the rule’s wording.

The first is to alter the language to align it with the FSA’s definition of independence. Under the new independence definition post RDR IFAs have to consider a broader range of retail investment products and provide unbiased and unrestricted advice based on a comprehensive and fair analysis of the relevant market.

The second option is to remove the rule on referrals altogether. Solicitors will still be required to act in clients’ best interests.

The third option, and the option preferred by the SRA, is to amend the rule so that clients and solicitors can make an informed decision about whether an independent or restricted adviser would be the best choice to advise on the client’s investments.

SRA financial regulation policy manager Agnieszka Scott says: “In outcomes-focused regulation, the solicitor should make a judgement as to what is in the best interest of the client. Changes in the financial market and the definition of advisers means an adviser could not be classed as independent but still provide the client with the relevant choice of financial options.

“Solicitors, as highly qualified professionals, should be free to assess and discuss clients’ needs, not be restricted by a prescriptive rule. It is one of the reasons we are consulting on three options available to us, and we would like as many people as possible to provide their views to us.”

The consultation closes on 10 September.



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. The catalyst for this consultation is the FSA’s muddled definition of ‘independence’, where a discretionary manager could have access to an unfettered choice of investments, but still be labelled as ‘restricted’.

    One does question why the FSA selected such opaque labels, which will totally confuse most consumers; let alone solicitors!

    Historically, the legal definition of independence has been taken to mean objective, unfettered, impartial and acting solely in the interests of the client.

    If we apply this to the post-RDR world, then ‘independent’ advisers and ‘restricted’ investment managers would meet this standard. While tied and multi-tied salesperson (such as SJP) would not.

    One can only hope that the SRA will settle on a quantitative test that will ensure that only truly objective and impartial advisers are referred to clients, and that sophistry and vested interest does not get in by the back door.

    Perhaps a solution would be to apply an ‘agency’ test, where only advisers who contractually act for the client, rather than a product provider, can be referred?

  2. “Solicitors, as highly qualified professionals, should be free to assess and discuss clients’ needs, not be restricted by a prescriptive rule. It is one of the reasons we are consulting on three options available to us, and we would like as many people as possible to provide their views to us.”

    Yes in legal matters – how can they make an informed choice about which route to follow regarding financial advice?

  3. @ Sean

    A fair comment – as under the present system, a number of solicitors have inadvertantly fallen foul of the prohibition against referrals to non-independent advisers.

    More worryingly, these referrals tend to be to a certain ‘upmarket’ sales force, which appears to do nothing to deter such referrals.

    Unless solicitors are given a quantitative test, as well as guidance as to what constitutes advice that is objective, impartial and unfettered, clients’ best interests are unlikely to be served.

    No doubt, apologists for the more aggressive sales forces will cry foul and insist on a ‘level playing field’. They may even say that referrals should be on the basis of qualification.

    However, such assertions will be disingenous, as advice is only demonstrably in the best interests of a client when it is manifestly devoid of any conflict of interest.

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