Tie-up with law firm may offer regulatory headache: Prolegal
IFAs risk exposing themselves up to scrutiny if they rush through with plans to team-up with law firms after the retail distribution review comes in, Simon Edwards has warned.
The principal for City-based law firm Prolegal said that both parties had to be clear in their understanding about the regulatory requirements that any such joint ventures might create.
He said: “Such a union is not without its complexities and it is somewhat anomalous that recent announcements suggest that law firms, which have shared management with financial advisers, are to lose their exemption from the Financial Services Compensation Scheme and FSA capital adequacy rules.”
“As with all things surrounding the advent of alternative business structures, such unions remain in unchartered waters and will no doubt be subject to the scrutiny of different regulators with different perspectives.”
However, Mr Edwards insisted that although there may be regulatory challenges, a marriage between a law firm and an IFA practice can work, despite historically not having worked well hand-in-hand.
He cited the example of law firms dealing with injury cases that often can result in large compensation payouts, here IFAs are able to provide financial management advice, he said.
Mr Edwards also said that tax planning is another area where both legal and financial advice is needed if the client is to reap a benefit.
He added: “Currently many firms have existing relationships with IFAs but a more integrated and seamless model is possible with the advent of alternative business structures.”
This comes a year after JPMorgan Asset Management ran a series of presentations for IFAs showing them how they can best work together with law firms, as law firms are also going through their own regulatory changes under the Legal Services Act 2011.
Mel Kenny, adviser for London-based Radcliffe & Newlands, said: “Law firms have a duty of care over how money is managed from accident claims.
“However, lawyers are not authorised to give financial advice so it is vital they team up with an IFA. In the future I think the union between lawyers and IFAs could be a happy one. There is no threat of one another poaching the other’s clients as they do not have power to give advice on the other’s areas of expertise.”