3 July 2012
SRA mulls dropping requirement on solicitors to refer clients to IFAs
Advice: SRA board to issue consultation
The Solicitors Regulation Authority (SRA) is set to recommend dropping the controversial ban on practitioners referring clients to tied financial advisers.
Solicitors would instead have to ensure that the client is involved in the decision-making process that goes into any referral.
This means the client would need to have “sufficient information about the status of the financial adviser, the law firm’s relationship with the financial adviser and other pertinent information”. This would potentially increase firms’ compliance costs.
A paper going to tomorrow’s SRA board meeting asks members to agree a consultation paper that supports this change in outcome 6.3 of the Code of Conduct as most appropriate for outcomes-focused regulation “as it does not prescribe how the outcome must be achieved”.
A supporting cost benefit analysis commissioned from consultancy Economic Insight suggests that this new outcome would be supported by an indicative behaviour stating that “use of an independent adviser will tend to show that the outcomes have been achieved”, but the draft consultation makes no mention of this.
Currently solicitors can only refer clients to financial advisers defined as independent by the Financial Services Authority (FSA), but the SRA board is reviewing the position ahead of changes brought about on 31 December 2012 by the FSA’s retail distribution review.
The consultation will also put forward the option of retaining the current position or removing outcome 6.3 altogether – on the basis that the rest of the code makes it clear what is required – but add an indicative behaviour which describes referral to an independent adviser.
Some tied financial advisers have been pressuring the SRA to change its stance, but SIFA – the body representing solicitors providing independent financial advice – has urged it to maintain the current position so as to safeguard solicitors’ own independence. To do otherwise would expose solicitors and the clients to “the least competent and the most unscrupulous elements in the industry”, SIFA told the SRA last month.
The economic analysis said the option of scrapping outcome 6.3 potentially benefits consumers the most as they would be referred to the adviser that best meets their needs, but could cost them the most too because of the risk that they are referred to restricted advisers when it is not in their best interests.
By Legal Futures
Tags: code of conduct, financial services, Financial Services Authority, OFR, outcomes-focused regulation, SIFA, Solicitors Regulation Authority
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