RDR Series - Forging a new life together
The original intention of the Retail Distribution Review (RDR) was to distinguish clearly between those financial advisers who share the professional ethic of independence and those whose independence is compromised by their relationship with product providers.
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Joint ventures can take a number of forms, but the most popular is the model whereby the joint venture is an appointed representative of the IFA firm, which lends its staff and resources and recovers the cost through a management charge. In this scenario the joint venture will usually be formed as a limited liability partnership rather than a limited company, so as to avoid being associated with the IFA firm for tax purposes.
One downside of the joint venture is that its viability will be dependent on the business produced by the law firm participant, and with this in mind some firms have set up multiple joint ventures to service a number of professional firms, with different classes of share for equity participants and referring firms. The group of Professional Financial Centres is an example of this model.
Joint ventures provide a convenient staging post to the multi-disciplinary practices, which the Legal Services Act will permit as from October 2011, and which will be able to provide the basis for different combinations of professionals, providing services focused on client needs rather than similar qualifications. The enterprising law firms Turcan Connell and Dickinson Dees are exponents of this model, although it seems unlikely that many other solicitors will be capable of emulating their commercial acumen.
Multi-disciplinary practices in which solicitors are in the minority are more problematical, having regard to issues such as solicitors' client confidentiality requirements and the disparity between compensation schemes. The solicitors' scheme, for example, offers £1m per claim and the FSCS only £50,000. An alternative which may find favour is the hub-and-spoke model, whereby professional firms – potentially solicitors, accountants and IFAs – would retain their autonomy but form an umbrella service company to provide administration, systems, compliance, marketing and possibly common branding.
Whichever model may be adopted, the conjunction of the Legal Services Act and RDR provides a golden opportunity for IFAs to take their place in the professional community. But the professional regulators have made clear that restricted advisers need not apply.
