Who is on your experts list? - How to protect yourself and deal with compliance

Who is on your experts list? - How to protect yourself and deal with compliance

In the last issue we looked at the decision of the Solicitors Regulation Authority (SRA) to allow Solicitors to refer their clients to tied advisers, rather than just to Independent Financial Advisers as had previously been required. We also noted that the Law Society is recommending that Solicitors ignore the SRA and only recommend clients to Independent Financial Advisers. 

Outcome 6.3 of the SRA code of conduct requires that when Solicitors refer clients to third parties, ‘clients are in a position to make informed decisions’. According to the SRA this means that clients should be given sufficient information about the status of the Financial Adviser and all other pertinent information, so as to be able to confirm their consent. A Solicitor cannot do this, unless they have first undertaken research themselves.

This means that client referrals have become a serious compliance issue for Solicitors, and firms will need to conduct due diligence to demonstrate that their selection of Financial Advisers is in their clients' best interests.

The past – endowments and Financial Adviser payment models

Solicitors are rightly nervous of becoming involved in referrals to Financial Advisers that could give rise to claims of mis-selling. Some may recall that when the endowment mis-selling scandal broke, it was the Solicitors who had referred their clients for advice who picked up the tab! 

The Law Society said in November 2012 ‘The inevitable consequence will be that Solicitors may become more open to negligence claims based on that recommendation or referral or that the profession as a whole becomes embroiled in the type of mis-selling scandal that has plagued the financial services industry in recent times, the provision of independent advice has historically been one of the fundamental tenets of the profession’. 

Do you remember Equitable Life? What if many Solicitors referred clients in volume to a similarly Restricted Advice firm who suffered the same fate?

Why were we negative regarding Restricted Advice Firms such as St James’ Place in the last D&DLS bulletin? The FSA reported in September 2012 that it is to demand tougher compliance for ‘firms operating a self-employed, volume based model’, based on its finding that ’20 out of 22 such firms operate schemes that increased the risk of mis-selling’.

Do you want to rely on the FSA succeeding in this venture, or make sure you are not at risk by addressing the compliance issue yourself? If it is the latter, read on.

Creating an audit trail 

How can you meet the SRA outcome 6.3? This involves assessing the status and business propositions of those Financial Advisers who are likely to be in a position to address their clients' needs; conducting due diligence on a selected shortlist and recording the rationale for their selections; constructing a panel where appropriate; recording relevant considerations on their Risk Register; and ensuring that the resulting decision has been promulgated to all members of the firm as a matter of policy and is kept under regular review. 

What better way of providing due diligence than by selecting an adviser from the Law Society endorsed SIFA Directory of Independent Financial Advisers? 

The Independent Financial Adviser firms which are listed in the SIFA Directory (which can be found at www.sifalegal.co.uk and is also accessible via the ‘Member Benefits’ section of the Law Society website www.lawsociety.org.uk) have been equipped to provide Solicitors with the due diligence and other documentary material which will provide the necessary audit trail for SRA compliance: 

  • A formal due diligence statement explaining the regulatory status of the adviser firm, its professional status, the qualifications of its individual advisers and the business specialisations of the firm itself.
  • An Authorised Third Party Agreement.
  • Terms of Financial Services Business for use by the law firm.
  • Regulatory disclosure statements.
  • Referral instruction records and feedback forms to be provided by the IFAs, summarising for the benefit of the Solicitors the Financial Advice provided to the client; drawing attention to any requirements identified for additional legal advice; and passing on any comments made by the client about the quality of the service provided by the Financial Adviser.

Who are SIFA & does PFC being a SIFA Professional Trusted Advisor firm matter? 

SIFA was founded over 2 decades ago with the objective of facilitating Solicitors’ involvement in Financial Services matters. The advent of competition arising from the Legal Services Act has underlined the need for Solicitors to provide a more holistic client service, embracing both legal and financial needs. SIFA is recognised by the FSA, SRA and Law Society and two of its directors were previously senior officials at the Law Society and/or the SRA.

SIFA assist Solicitors and fee-based Financial Advisers to work together to mutual benefit, enabling Solicitors to differentiate themselves from existing and new competitors by providing an holistic client service; and enabling Financial Advisers to provide complementary advice and to contribute marketing and client database management skills. SIFA’s lengthy experience of compliance with principles-based regulation under the Financial Services Authority is now also available to Solicitors. PFC can enable you to receive SIFA’s ongoing assistance with the COLP and COFA functions at a discount.

Is Professional Financial Centre (East Midlands) Ltd on your experts list?

We have been a SIFA member firm and have operated on a fee-only basis for over a decade and as a result, we have a wealth of knowledge and practical information that Solicitors can use to help reduce the compliance burden yet ensure they are protected. 

We are able to provide you with the due diligence statement, Terms of Business, Third Party agreements and other documentation described earlier. If you would like to receive copies of any of these documents, please do not hesitate to contact us at the address below.

Also, if you would like to discuss with us the benefits of including us on your experts list then please do not hesitate to contact us. Professional Financial Centre (East Midlands) Ltd has helped many clients to put a sensible financial plan into place for the rest of their lives. As changes happen, we review our clients’ plans, adjusting them to meet changing economic circumstances and family needs. Why not challenge us to do the same for you or your clients?

As a member of the Derby Law Society, by quoting code LS1 you and / or your clients will receive a 5% reduction in our costs.

Richard Shanks (Managing Director and Chartered Financial Planner)

Professional Financial Centre (East Midlands) Limited

Wesley House, St Michael’s Lane



01332 341406

Authorised and regulated by the Financial Services Authority. This article is not a recommendation and you should obtain appropriate advice before acting on any of the information provided.