The proposals by the Council of the Law Society to alter rule 5 of the practising rules to permit the hiving off of business services through entities separate from legal practices must be welcomed.The decision shows a realistic sense of liberalisation, an acknowledgment of practical and commercial realities and seeks to impose regulations which are intended to ensure that the public realise it is being dealt with by a different discipline which does not have the legal profession's protective umbrella.The Council has had to walk a difficult tightrope and sh ould be congratulated on what has been achieved.This commentary is written from the experience of a firm which has for some 20 years developed an interest in financial services, in particular the active management of investment portfolios.Such management has for the past ten years been undertaken through a separate unlimited liability company, THESIS, with FIMBRA registration, permitted by consent and waiver by the Law Society.

That consent has been limited in time and has created a degree of uncertainty over the company's future development which now, thankfully, will be removed.THESIS has substantial funds under management but has been the product of a gradual process arising initially from the need to ensure that trust funds within the control of a solicitors' practice are properly and actively managed.Experience showed that busy solicitors 'reacted' to stockbrokers' reports and active knowledgeable management came some way down the list of priorities.It became necessary for practical and commercial reasons not only to employ properly qualified investment managers to undertake this task but also to do so within a structure and environment they understood, free from the highly professional structures which are imposed upon solicitors.The revolution in financial services in the Thatcher years which swept away the family stockbrokers emphasised the need for clients to be able to seek professional portfolio management which catered for their personal and family needs.The combination of a well run company with the protection of FIMBRA membership backed by a substantial firm of solicitors proved a successful formula and clearly met the needs not only of clients of the firm but a growing number of others.It is, of course, appreciated that profitable financial services can be and are provided from within solicitors' practices and the Council's decision raises the question of the advantages and disadvantages of running a separate business.The most obvious attraction, although possibly not the most important, is the purely commercial benefit of being able to identify the full value of the investment made outside the constraints created by a partnership structure and manage the business within its own commercial environment.A company has the ability to have limited liability and the flexibility created by share ownership.

The staff and managers involved create their own culture and work in an environment entirely relevant to the business they undertake, free from the solicitor's professional constraints and can share in the profits made.There is complete freedom to promote and advertise the services offered without any risk of offending fellow solicitors or the Law Society's code.Perhaps, however, the most important factor that has affected the direction my firm chose to take is that the clients accepted the need for and were content to pay a fair portfolio management fee.It has been the firm's experience, and this may still be true of many firms now, that solicitors could not bring themselves to charge properly - or at all - for the service they were providing.

The separation of the services meant not only that clients perceived the need and accepted a fee but that partners' objections or reticence were dissipated.The disadvantages of running a separate business may depend upon one's perception of the duties of a solicitor and the degree to which the individual solicitor feels it important to provide this service direct to his or her client.

There are, however, obvious disadvantages.The amount of investment in s taff, technology and premises if the business is to compete with similar bodies is very considerable indeed.

To obtain acceptance by one of the financial service regulatory bodies is a complex task, not only in understanding the many regulations but also to meet those requirements which are monitored by frequent regulatory inspections.The deposited capital requirements shortly to be increased under EU regulations and separate professional indemnity insurance are significant factors.

Indeed, these regulations and requirements make the Law Society regulations seem like those of a benevolent uncle.The change in rule 5 and having to follow the code of practice adds yet a further burden, one consequence of which is to create lack of flexibility in the use of office space.The choice of whether to take advantage of the liberalisation of rule 5 clearly must depend upon the stage of development of this separate business whatever it may be.For my firm, it makes sound commercial and practical sense to have a hived off business.

It would have been a great disappointment to us for any other solution to have been reached by the Council.If solicitors have made the effort and investment to create a service for their clients which has developed out of such clients' needs why should they not, like others, be entitled to manage that business separately and on an equal footing with its competitors in the industry.