Posted by Dave Seager, consulting adviser to Legal Futures Associate SIFA Professional
Whilst the Financial Conduct Authority’s regulations might be quite precise, and the Institute of Chartered Accountants in England and Wales’s can be too (as you might expect), the Solicitors Regulation Authority (SRA) opted, in 2019, for a slimmed down rulebook – the Standards & Regulations (STaRs) governed by a concise set of seven principles.
It wished to encourage individual professionalism within clear parameters, prompted by both the guiding principles and the then brand-new firm code of conduct. It is the firm’s responsibility, primarily that of the compliance officer for legal practice to introduce processes to facilitate and direct the individual professionalism and high standards.
As we approach the fourth anniversary of the STaRs, it is interesting to consider if and how the governing principles might, or even perhaps should, influence a firm’s and individual lawyer’s behaviour, in the context of third-parry referral to financial planning professionals.
However, to be clear, I am NOT considering third-party referral without a financial interest, which the SRA denotes in section 5.1/5.3 as a referral to a ‘separate’ business.
In these cases, all of the following will apply, but in addition the referring solicitor must ensure that the client’s informed consent is on record. However, it is our experience at SIFA Professional, and this is backed up by feedback from our member firms, that the majority of solicitors are not referring for financial gain but because of an identified need.
So, solicitors must act:
“In a way that upholds the constitutional principle of the rule of law, and the proper administration of justice.” This is just what we should all expect and do expect from the legal profession.
“In a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons.” A client, when seeking professional advice from a solicitor or other lawyer in an SRA-regulated practice, would hope and expect that the knowledge of that individual is completely up-to-date, particularly if it means be able to identify that there is ancillary advice needed from a fellow professional.
If the third-party concerned is a financial planner, the lawyer needs to be knowledgeable enough to spot the need for the referral and at what point in the process the recommendation for external advice should be made.
This principle is, in my view inextricably linked to the current Legal Services Board and, in turn, SRA pressure on continued competence and your financial planning partners will certainly be on hand to support your knowledge enhancement, as I covered in March’s blog.
“With independence.” The SRA would find it hard to believe that all third-party referrals should go to the same referee, and it has said this to SIFA Professional. As with the legal profession, financial planning firms will have specialisms and expertise in different areas, so a preferred list of third parties based on client needs might be suitable, as one size may not fit all.
“With honesty.” As with trust, a client must expect honesty from their legal adviser in advising them that they need complementary advice from another professional, in relation to their issue or problem.
“With integrity.” If a solicitor identifies the need for complementary advice from another third party and does not suggest an appropriate professional adviser, can they be said to be acting with integrity? The regulator would almost definitely suggest not.
“In a way that encourages equality, diversity and inclusion.” Whilst this is a constant theme for the regulator, it may not directly influence a choice of third-party, although it could.
“In the best interests of each client.” This is, of course, the most important of the seven principles when it comes to third-party referral, and it must run through all decisions made by the law firm and its individual lawyers.
The question that MUST always be uppermost in any referral or recommendation process that takes a solicitors’ client away from them to a third-party, is this: How can we demonstrate why we are convinced that this referral is in this particular client’s best interests?
The answer of course, is thorough and transparent due diligence and the better financial planning firms will be confident enough and able to support you with evidence to support your consideration.
As Crispin Passmore, then an SRA director and one of the architects of the STaRs told an audience of SIFA Professional firms, just ahead of their introduction: “How can you possible demonstrate a referral is in the best interests of the client, without first conducting due diligence of the referee?”
SIFA Professional firms are promoted to solicitors via the SIFA Professional Directory of Financial Advisers, working with the Law Society.