SRA board warned over financial advice confusion


Menzies-Conacher: restricted is not the same as tied

Controversial proposals by the Solicitors Regulation Authority (SRA) to end the requirement on practitioners to refer clients to independent financial advisers risk being misunderstood, a member of the SRA board warned last week.

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 (RDR).

In a consultation approved by the board last week, the SRA is recommending that this requirement be dropped and that solicitors would instead have to ensure that the client is involved in the decision-making process that goes into any referral.

To call themselves independent under the new regime, financial advisers have to be able to advise on all of the types of products in which people could invest. Otherwise they will have to describe themselves as ‘restricted’; this is replacing the notion of financial advisers who are ‘tied’ to a particular provider.

Lay member Ian Menzies-Conacher, who is a chartered accountant, told the SRA board that it needed to be clear that independence has a different meaning under the RDR, while ‘restricted’ is not the same as ‘tied’.

“You could get lots of good people who may choose to be restricted because they don’t want to advise across all financial services,” he explained, endorsing the recommended change.

Sara Nathan, who chairs the SRA’s standards committee, said it too was “strongly in favour” of the proposal. There was no dissent from any member of the board at the meeting.

FSA guidance published last month said: “The new standard for independent advice is intended to ensure that such advice is genuinely free from bias towards particular solutions or any restrictions that would limit the range of solutions that firms can recommend to their clients.

“In providing independent advice, a firm should not be restricted by product provider, and should also be able to objectively consider all types of retail investment products which are capable of meeting the investment needs and objectives of a retail client.”

Retail investment products is wider than packaged products, according to the FSA. It also includes structured investment products, all investment trusts, unregulated collective investment schemes and any other investment that offers exposure to underlying financial assets, but in a packaged form, which modifies that exposure compared with a direct holding.

 

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    Readers Comments

  • Mr Menzies-Conacher (and the SRA board?) seem unaware of the FSA’s Guidance Consultation 12/3, which permits independent financial advisers to specialise without prejudicing their independent status. This reads at 2.10: “In terms of disclosure, ‘if a firm provides independent advice in respect of a relevant market that does not include all retail investment products, a firm must include in the disclosure an explanation of that market, including the types of retail investment products which constitute that market’ (COBS 6.2A.6R(2))”.

    The FSA has gone out of its way to emphasise its expectation that the vast majority of IFAs will remain independent, and only a perverse decision by the SRA would change this.

    “Restricted” may not have exactly the same meaning as “tied and multi-tied”, but the great majority of firms which would benefit from relaxation of the prohibition would be those which are tied and multi-tied. The advice of these salespeople is conflicted by self-interest, and admitting them into the solicitor market would damage the reputation of the profession and invite massive claims against the Solicitors’ Compensation Fund and quite possibly lead to a repeat of the Equitable Life debacle.


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