Why are law firms broadening into financial advice?

In May, boutique firm Wildcat Law shared its intention to enter the financial advice industry as it awaits authorisation by the Financial Conduct Authority.

In the same month, law firm Irwin Mitchell announced its acquisition of chartered financial planner TWP Wealth, as the former looks to expand its wealth management arm.

So why are law firms expanding their remit into financial advice?

We spoke to clients who expressed their frustration over a lack of joined-up advice—Neil Moles, Progeny

Although not necessarily common, the concept of a multi-service firm is not a new one, with Progeny, for example, having officially launched in 2016 to bring wealth and legal services together.

“The Progeny concept was born out of the recognition that many clients need a whole suite of professional services, but they were having to interact with multiple firms and advisers to fulfil these needs,” says Progeny chief executive Neil Moles.

“Before we launched Progeny, we spoke to clients who expressed their frustration over a lack of joined-up advice and clarity over fees and we’ve aimed to solve this by providing access to holistic, collaborative advice, where clients have all their professional services advisers under one roof.”

Wildcat Law director David Robinson speaks of a similar motivation. “We aim to offer an integrated service for our clients, as we are family and business advisers rather than just transactional lawyers.

“For example, this means when we are speaking to them about estate and succession planning we can look at all aspects, from protection through to their wills and bespoke trust arrangements, including how assets are held in those trusts.

“It is only possible to offer a seamless service by offering them together, rather than external referrals.”

Transactional vs ongoing advice

While both are client-facing industries, Chattertons Wealth Management chief executive Richard Ludlow describes legal services as often transactional in nature. “By offering our clients financial services as well, there was an opportunity to stay in regular contact and provide an ongoing service.”

Chattertons, a Lincolnshire-based law firm established in the 19th century, expanded into financial services more than two decades ago to provide clients an extra service that complemented the firm’s existing offering.

Indeed, it is often for legal advice that wealth management clients will initially approach Chattertons. “All areas of law can have a financial angle,” says Ludlow. “Our legal colleagues regularly refer clients to our wealth management division, but it also works the other way round.

“Someone making a will might want a review of their existing investments and pensions. We might be dealing with a trust case, and the trustees require advice regarding investing the trust fund.”

All areas of law can have a financial angle.—Richard Ludlow, Chattertons

Edward Tomlinson, head of financial planning at Irwin Mitchell, also says wealth management clients will typically have specific financial advice needs that are related to the legal advice they have sought.

“That’s what kicks things off, but once you’ve done that bit of specific financial planning work – whether it be a settlement or divorce – if you did a good job on that first piece of work, then they’re going to come back to you for all of their work.

“That’s certainly what we’ve been finding, is that they come to us because there’s been an event created through usually the legal matter, but then it’s staying with us for all of the matters.”

A joined-up approach

While legal services can be a source for financial advice leads, Wildcat Law director Robinson concurs that an integrated offering is generally missing in the market.

Robinson recalls working at a bank offering a private office service for wealthy clients, and losing many clients to family offices that were able to offer an integrated legal service in addition to wealth management.

Meanwhile, he anticipates that a significant number of client meetings at Wildcat Law will involve both the solicitor and financial adviser. “The idea would be that the client has both in the room and that they’re able to therefore have this joined-up conversation, rather than talking to one and then talking to the other one separately.”

Indeed, Robinson agrees that legal advice or knowledge is beneficial in areas of financial advice where there are also legal implications, citing the setting up of a trust as an example.

“What you typically find is the vast majority of financial advisers will use an off-the-shelf trust solution, which for a lot of clients could be perfectly suitable. But the reality is the advisers don’t have the level of understanding about trusts that frankly you get with a probate solicitor.

“We deal with a lot of contentious probate and trust work, and a lot of that comes about because the inappropriate wording has been used.”

Clients at Irwin Mitchell will likewise often meet with both their solicitor and financial planner simultaneously. “Something we talk about is the transfer of trust,” says Tomlinson. “If someone’s done a very good job for you for one matter, and you’re saying you’ve another need, and I’ve got a colleague who can maybe help you with that.

“Meeting that client with the person they know and trusted, and that person’s saying, ‘Here’s my colleague who, if you choose to instruct them, will do a very good job for you’. That can really help put the client at ease, to know that they’re still within the same firm, being looked after by the same sort of people, and that really helps them get at ease very quickly with the new person that they may be dealing with.”

How easy is it for a law firm to enter financial advice?

Although the legal and financial advice industries are both regulated, entering the latter industry as a regulated law firm is not necessarily an advantage, according to Wildcat Law’s Robinson.

“You’d like to think that it was a similar application process, but it’s not. There are of course some similarities, in so far as you have to do a similar sort of process with regards to money laundering on the financial services side to the legal side; you have to have a compliance department, processes and controls.

“So in that scenario, yes, there are some synergies and some of those policies you can certainly carry over. But then you’ve got to open up another book with a lot of other policies.

“What you’ve also got to look at is the risks between the two parts of the business. What you’re effectively doing is at least doubling your risk from a compliance perspective with regards to financial services and the legal side, to make sure that what you don’t get is a financial adviser giving legal advice that they’re not authorised to do, and vice versa.”

Chloe Cheung is a senior features writer at FTAdviser