Both the solicitors’ body and the accountants’ bodies insist that client referrals by their member firms should be confined to independent financial advisers, and they currently follow the FSA definition of independence as providing a whole-of-market service and offering a fee option.
Inconveniently the FSA has chosen to redefine independence for the purposes of the retail distribution review. It no longer accords with the dictionary definition of the word on which the rules of the professional bodies are based. The reason behind the FSA’s letter was the realisation that if the designated professional bodies were to continue to follow the precedent of the FSA by adopting its new definition, this would cause problems.
The particular concern centres around stockbrokers, with who many professionals have long-standing relationships. As their representative body, the Association of Private Client Investment Managers and Stockbrokers, has pointed out the inability of many stockbrokers to advise on life and pensions would cause them to be classified as restricted. It would therefore preclude them from continuing to work with their solicitor and accountancy connections.
The concept of independence is particularly close to the heart of the legal profession. The underlying principle is that solicitors’ advice may be conflicted if they try to serve two masters, either by confining themselves to a limited number of sources of external advice, or by accepting remuneration from someone other than their client.
Based on this principle, law firms which are authorised by the FSA to provide financial advice to their clients are not permitted by the SRA to be tied or multi-tied agents of product providers or to be members of IFA networks. Law firms that are not FSA-authorised are required to confine their client referrals to independent financial advisers. To clarify this restriction, the SRA issued guidance in July 2009.
The irony is that the new definition will be incomprehensible to the consumers whose interests it is intended to protect. And, as has also been pointed out, if the same test were applied to solicitors, most of them would fail. This is because most choose to specialise in particular areas of the law rather than offering a whole-of-market legal service.