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Law Society speaks out on IFA referrals

Unless you're in some way connected to the legal profession, I would guess you've probably missed the fact that the Law Society is no longer the regulatory body for solicitors. The current regulator is the Solicitors Regulation Authority, one of a number of bodies allowed to license lawyers in England and Wales - such as the Bar Standards Board, who have traditionally licensed Barristers. I've posted before about some of the issues that this change is bringing about - including the ability of non-solicitor companies to obtain a licence to practise.

However the Law Society does still exist. It is now a trade body, 'representing' solicitors and solicitors' firms throughout England and Wales (whether we agree with it or not!)

One of the consequences of the change is that the Law Society and the SRA do not always reach the same conclusion on specific issues. The SRA has taken a firm stance that it favours 'outcome-focussed' regulation: essentially this means that there are less prescriptive rules. Supporters argue it gives more flexibility for firms seeking to keep up with the level of service clients now expect; critics believe it is simply giving more rope for firms to hang themselves with, that the SRA basically now do not let you know the rules by which you are judged. Whatever the relative advantages and disadvantages, I think for a long time the vast majority of solicitors' firms will simply stick to the rules they're used to.

Recently the SRA have announced plans to relax one of the rules it originally kept: currently solicitors are prohibited from recommending clients to financial advisers who are tied to any particular company or groups of company (as reported here). This is in a response to a change in the rules for financial advisers, which now mean that they must all receive fees in a similar way, rather than through a variety of commission schemes. However the Law Society has recently expressed the view that solicitors should only refer clients to Independent Financial Advisers, so they can be sure that the advice they receive is not tainted by any referral fee they may receive.

I think this situation again raises the question of whether any solicitors would actually want to refer clients to tied advisers? I doubt I'd ever be able to get a hold of accurate figures for this, but it does add a further question clients have to raise: is anyone paying you to send them my business?

This question is very relevant to executors and administrators of estates. Many estates include large sums of money, shares and/or trusts. Part of the process of administering the estate is to try to protect the value of any cash or investments and, in the case of trusts, invest them wisely to achieve a reasonable income.

The reason why people seek the advice of financial advisers is that the investment product market is particularly complex, with various companies trying to sell a bewildering array of investments. The wide variety of assets you can invest in - from houses to shares to bonds and financial instruments - simply cannot be properly assessed by the lay person. It is certainly not an area that a solicitor could offer advice on.

It is too early to say whether there is going to be a change in this area of practice but I think it is really important for any lawyer to have to be up front about when their advice is being influenced by other arrangements.

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