Restricted referrals are no threat to real independence
Spurious redefinition of independence should not force professionals to stop referring to trusted advisers.
Phew! It has been a busy week in news terms.
We’ve seen ongoing opprobrium over bank manipulation of lending rates, which has already seen the regulator levy a record fine against Barclays and has now embroiled the Bank of England’s deputy governor.
While former chief executive Bob Diamond’s appearance before MPs yesterday (4 July) turned out to be something of a damp squib, the contagion of this imbroglio is now spreading fast to the opposition benches in parliament and beyond. We will be hearing more on this in the weeks to come.
In recent days we have also been the collapse of IFA network Honister, purportedly due primarily to its inability to secure professional indemnity cover. Some 900 advisers have been left out in the cold following the firm’s demise and there has been a spate of revelations surrounding the inevitable “feeding frenzy” (in the words of one IFA caught up in the furore).
That’s not all. We’ve also had the resignation of embattled Money Advice Service chief executive Tony Hobman, whose salary was a regular cause of consternation for advisers who indirectly remunerate him, and a fresh mis-selling scandal in the banking sector.
All this and I’ve not even mentioned new revelations that Arch Cru fund values have dropped again, or the continuing reaction and debate over the Financial Service Authority’s recent platform paper.
But above all this the one issue that has piqued my interest in particular in the past week has been the publication by the Solicitors Regulation Authority of a consultation on whether it should amend its code of conduct to loosen up restrictions around referrals to financial advisers.
In essence, they are proposing that - with certain caveats in terms of due diligence requirements - solicitors be allowed to refer to non-independent advisers post-Retail Distribution Review to better reflect the nature of the intermediary market.
In the case of solicitors, while their code does prohibit referrals to non-independent advisers, it is widely known that many often do refer clients to multi-tied agents
Accountancy trade body the Institute of Chartered Accountants in England and Wales (ICAEW) has also confirmed it will be allowing referrals to restricted advisers post-2012.
This in itself is compelling enough, but what has interested me most about the story has been some of the reaction.
In particular, on one of our stories leading up to the announcement one reader commented that such a move would be misjudged, as passing a client to an adviser that is not thoroughly whole of market and unbiased is tantamount to the solicitor recommending a certain set of products themselves.