IFA rule under scrutiny
The Solicitors Regulation Authority has signalled that it is likely to scrap the requirement for lawyers to refer clients only to wholly independent financial advisers, as opposed to advisers contracted to sell the products of one or more providers.
This is the ‘provisional preference’ among three options in a consultation paper due to be considered by the SRA board as the Gazette went to press. Retaining the rule is prescriptive and therefore incompatible with outcomes-focused regulation, the paper suggests. Admitting the proposal is ‘controversial’, the paper adds: ‘The lawyer and the client would work out whether an independent or restricted adviser would be the best choice.’
Asked how it could ever be in a client’s interests for a solicitor to refer a client to a restricted adviser, an SRA spokesperson said: ‘With the changes in the financial market and the current issues with the definition of the independent adviser, there is a possibility that an adviser will not be classed as independent, but be able to provide the client with the choice of financial options relevant to the issue, the same as the IFA, but be more available or cheaper.
‘We believe solicitors, as highly qualified professionals, should have the freedom to assess the need and discuss this with the client, not be restricted by a prescriptive rule.’
The body that represents wholly independent advisers, Solicitors Independent Financial Advice (SIFA), has warned that the profession will be exposed to indemnity claims if the process is liberalised. Speaking this week, managing director Ian Muirhead reiterated SIFA’s opposition to the reform, pointing the finger at the Financial Services Authority, which he said has produced a ‘cack-handed’ definition of ‘independence’. But he suggested the change could lead more solicitors to form 50/50 joint ventures with IFA firms from which they could receive a dividend.
This would solve the problem of seeking to determine whether and to what extent IFAs are ‘tied’ to providers.