The Solicitors Regulation Authority (SRA) is to push ahead with controversial changes to the rules on referrals to financial advisers that will no longer preclude them from choosing those tied to particular institutions.
Despite opposition from the Law Society, solicitor financial advice group SIFA, and financial services experts, the SRA board will be asked on Wednesday to approve changes to the Code of Conduct that would allow solicitors to put clients “in a position to make informed decisions about referrals in respect of investment advice”.
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 SRA said there was a risk that only allowing solicitors to refer to those advisers deemed ‘independent’ might not be in the best interests of clients.
Agnieszka Scott, SRA director of policy, said that while the authority had taken on board the comments received, “nothing has changed us from our belief that the best way forward is to implement our preferred option”.
She explained: “This represents the best fit with outcomes-focused regulation as solicitors, as highly qualified professionals, would be free to assess and discuss clients’ needs, not be restricted by a prescriptive rule.”
Among the reasons for taking this approach, the SRA said, was to reflect the possibility that under the new FSA regime, many firms currently described as independent may not be able to label their advice that way from next year; making the lawyer ensure the client understands the implications of a particular recommendation; ensuring the client is involved in the decision-making process; and removing restrictions of customer choice, if seeking financial advice referral through a solicitor.
Opponents have argued that the change risks a mis-selling scandal, that the SRA has been “hoodwinked” over what will happen to advisers currently called independent, and that insurance companies could buy law firms and use them as tied conduits to sell their products to consumers.
Yesterday’s announcement by the SRA also marked a departure from normal practice by seeming to pre-empt a decision of its board. The move is likely to be in response to Legal Futures, and websites which have followed our lead, reporting on SRA board papers that are published in advance of meetings.