Solicitor referrals: an issue of independence

6th September 2012

The Solicitor’s Regulatory Authority (SRA) consultation on whether to permit solicitors to refer clients to restricted advisers closes on 10 September, with the outcome to be announced on 17 October.  The consultation paper and information about how to respond can be found here.

In effect, there are three options:

  1. An updated version of the current position, whereby referrals can only be made to an Independent Adviser
  2. An Administrative version of this, with much the same intent
  3. To allow Solicitors to refer to a advisers operating a Restricted Advice model

Image courtesy of Miuenski, Flickr

Having already adopted principles-based regulation, the SRA tends to take its cue from the Financial Services Authority (FSA), which has reiterated in its latest consumer guidance that its sole preoccupation is with the scope of the service offered – rather than the independence of the adviser. Indeed, the SRA has already stated it prefers the third option above.

We believe that  the requirement to refer to an Independent Adviser should be maintained because:

  • There is significant evidence that historic breaches of the current rule have led to poor outcomes for Clients.
  • ‘Restricted Advice’ will cover a very broad church and it will be difficult to differentiate between a better qualified adviser and a better qualified ‘salesperson’. It can been argued that, in selecting an appropriate “restricted” firm, solicitors will be making a form of financial recommendation; is this their role?
  • From a practical point of view the selection of a suitable “restricted” adviser will require extensive due diligence to be undertaken and recorded in order to satisfy compliance requirements.
  • It is becoming apparent that the vast majority of existing IFAs will remain Independent post-RDR, therefore there will be no shortage of “independent” advice available.

Having considered each of these factors we conclude that any change to the existing rules carries a significant risk of weakening consumer protection and there is no good reason (regulatory or administrative) why such an outcome should be allowed.

If you agree with our argument then please take some time to respond to the consultation paper in order to have your views noted.