There have been game-changing milestones in the evolution of modern financial advice. Regulation, legislation, increased professionalism and high standards of compliance and education have all improved the way financial advice is given in this day and age.
More and more of today's advisers are specialising in select areas of expertise and working with accountants and solicitors who increasingly regard them as their professional peers and are comfortable introducing clients who might need specific advice on matters such as investments, pensions and tax planning.
Ian Muirhead, chairman of Solicitors for Independent Financial Advice (Sifa), is well placed to comment on the changing landscape. His body provides support services to solicitors, accountants and IFAs. He believes accountancy firms have always been more aware than solicitors of the importance of financial advice and said: "By their very nature accountants are more commercial and flexible than solicitors and in many cases better at running a business. Legal advice is transactional – a client may instruct a solicitor to do some conveyancing, draw up a will or handle a divorce, take a fee and then close the file and lose touch with the client. Accountants, on the other hand, will maintain regular contact with clients in relation for example to audit, tax returns and annual accounts."
As a result of the Legal Services Act, which effectively abolished solicitors’ monopoly of the retail legal services market, accountants are now providing competition for solicitors. There are about 300 accountancy firms authorised to conduct probate business and their representative body, the Institute of Chartered Accountants in England and Wales, has predicted this will rise to some 750. In the foreseeable future, accountants will be offering all types of legal services that were previously reserved to solicitors.
- More and more of today's advisers are working with accountants and solicitors.
- Payments can be justified if the solicitor really does provide a service.
- Advisers have to parade their areas of expertise to solicitors.
Mr Muirhead said financial advisers have a big role to play in helping solicitors maintain relationships with their clients and he is delighted that solicitors’ regulatory body, the Solicitors Regulation Authority (SRA), is urging solicitors to take an holistic view of their clients’ professional needs.
Since 2012 solicitors have been allowed to introduce clients to restricted advisers, although their representative body, the Law Society, which is now separate from the SRA, is strongly in favour of referrals being confined to independents, on the basis that independence has always been “one of the fundamental tenets of the profession”.
The rules affecting payments received from financial advisers for referring clients are similar for solicitors and accountants. In both cases, the requirement is that the professional referrer must account to the client and justify retaining the payment.
In most cases, the professional will have simply passed on the client’s name and contact details to the financial adviser, which will hardly justify the sums that might be received, and most solicitors prefer to refuse payments. They have always been highly motivated by ethical considerations and tend to assume ethics is the basis of regulatory compliance. Significantly, the area of the SRA website containing the code of conduct has a pop-up that reads: “Do you have a question about these rules? Chat to an ethics adviser.”