Solicitors are being urged to tap into the potentially highly profitable area of financial services.The Law Society and its President, Martin Mears, want solicitors to become much more 'men and women of affairs' and not be afraid to use their professional standing in the high street to provide financial services.Scottish lawyers have traditionally done just that and quietly watched their practices grow.

But the picture on this side of the border shows that solicitors are not squaring up to the new challenge.

Out of 7200 law firms authorised to conduct investment business only 200 are providing in-house financial advice, compared with seven out of ten in Scotland.Richard Pearce, head of Solicitors Financial Services at the Law Society, believes the provision of professional and independent financial advice is very often essential if solicitors are to continue to look after their clients' best interests.'What is frustrating', he says, 'is that too many practices still view financial services as something rather nasty and so have not bothered to investigate it.'Clearly some areas of practice are simply not suitable to take advantage of this market, but firms with significant probate or PI business, where clients are in receipt of large cash sums, may well be missing opportunities.Ian Muirhead, managing director of Solicitors for Independent Financial Advice, adds: 'With the bad press other sections of the financial services community have received, solicitors are ideally positioned to capitalise on their reputation for integrity and reliability.'But in order to do this, solicitors' firms must first show they can provide a skilled and professional service.

Dabbling is not the answer and neither is engaging financial experts who do not understand the ethos of solicitors' firms, says Bob Butler, head of the monitoring unit at the Law Society.The worst compliance cases uncovered by the Society's monitoring unit have involved firms which have brought in outside specialists.Mr Butler says that quite often the partners are labouring under the misapprehension that they have got the 'real article' and so fail to provide the correct level of supervision.One way of avoiding this trap is for firms to subscribe to the Law Society Solicitors Financial Services (SFS) which has struck a deal with three of the country's leading independent financial adviser firms -- Sedgwick, Godwins and Hogg Robinsons.Solicitors who offer financial services through permitted third parties (authorised independent financial advisers such as these three firms) have to comply with a different level of regulation.Under a 'master agreement' negotiated with these firms, solicitors can provide their clients with professional and truly independent advice.Already 1400 firms provide financial services to their clients through the Law Society's three-firm agreement, while about the same number use 'permitted third parties' outside the scheme.Mr Pearce says the Solicitors Financial Services deal is particularly attractive because it provides for a solicitor to receive 50% of the commission from a successfully sold financial product.

The solicitor can then pass some o f it (usually half again) back to the client.Andrew Jones of Newcastle upon Tyne solicitors Stanton Croft benefits from the Society arrangement and uses two of the three IFA firms 'quite extensively'.He says the client is 'very happy' to accept this because of the 'cashback' deal.If a client went to a high street IFA directly he or she would be unlikely to see any of the commission.Mr Jones observes: 'Many clients we deal with come into possession of the biggest sum of money they have ever had to deal with before.' If they are not put in touch with an IFA, he warns, then the bank manager or building society will pass them on to their organisation's financial adviser who has a vested interest in selling them their own financial product.Financial services only account for about 2% of Stanton Croft's turnover.

But, says Mr Jones: 'We are trying to build up the financial services side of the practice and if it really took off then we might consider employing a financial services professional.'This would mean going beyond permitted third party advice and coming under the compliance regime for the in-house adviser laid down by the Society.

Fundamentally it would require the Society authorising Stanton Croft's in-house financial adviser.A small number of firms have already made the plunge into the world of discrete business advice and set up highly developed financial services departments.Ian Muirhead, managing director of Solicitors for Independent Financial Advice, says the real 'bridge' between legal work and financial services is tax: 'The law firm has a responsibility to point out to a client that he is paying too much tax.'He believes a financial service practice allows the solicitor to build stronger relations with clients and therefore has more chance of keeping them.'Whereas legal work involving death, divorce and moving houses is a complete turn-off to clients, making more money is of great interest to them,' he says.About 50 firms are full members of the Association of Solicitor Investment Managers (ASIM) which, through in-house authorised financial advisers, manage client funds.This involves a comprehensive service of half-yearly reports, financial deal arrangement, market research and valuations.Nicholas Grazebrook of Birmingham firm Shakespears is a director and vice-chairman of ASIM.

He predicts more and more solicitors will become involved in this sophisticated type of financial service.'We have', he says, 'a number of candidate members [those who are not full members] who aspire to providing this service who need every 'encouragement because, after 1 November, [the deadline for discrete investment firms] the leap will be that much more daunting.'He says his clients are 'very happy' to be able to go to a solicitor and have a legal and investment management service under one roof and pay a fee, rather than remuneration being worked out on a commission basis.But clients looking to play the stock market will still have to go to a stockbroker as solicitors' firms provide a more conservative financial service looking towards longer terms investments.Home counties solicitors Kidd Rapinet has gone one step further and hived off its financial services arm creating a subsidiary company providing clients with expert business advice.Says Mr Butler: 'This is excellent and could only be done through a recent change in the rules.

Here is a firm of solicitors saying we are so confident about our financial services we can set up on our own.'Because it is a separately constituted company it does not c ome under the auspices of the Society compliance regime, even though it is owned by Kidd.Devon firm Bond Pearce has recently hired an insurance company legal director as a partner and is setting up a compliance advisory service for insurance companies and solicitors who want to provide financial services.In many ways the Society recognises that the law firm of the future may not resemble the practice of the 1990s.

The legal practice course already includes investment business as an introductory and pervasive subject, and one of the modules at the training contract stage is on more advanced investment business advice.'The intention', says Nick Saunders, head of training at the Society, 'is to make solicitors aware of the regulatory framework and the opportunities there are for doing investment business.' He says the trainee solicitor passing through the law schools of today is more open to the world of financial business.

'It won't perhaps represent the type of fears it might have done to a previous generation.'IMPACT OF THE NEW RULESUnder new Law Society rules which came into force on 1 November, all firms offering specialised in-house financial advice must have an authorised person providing it.

Solicitors seeking qualified person status must apply to the Society which grants authorisation on the basis of that person's previous experience and financial service qualifications, including the Society's financial services exams.

The final decision is made by the authorisation casework committee, made up of a panel of investment business specialists.

All non-solicitors employed by solicitors' firms will, in addition, have to meet further Society compliance standards.

Of the 800 firms which have been providing in-house discrete investment business the Society predicts only 200 will be authorised for this activity by the deadline.

The Society believes that this seemingly dramatic reduction in service is the fall-off rate from those firms which were only dabbling in the service.Bob Butler, head of the Society's monitoring unit, explains: 'Some of these firms were providing a low quantity of this kind of discrete investment business.' However, he admits to being disappointed that more firms have not taken up the service.'These are quite a number of firms which have said that they are very interested in getting into discrete investment business but aren't ready for the deadline.' He regards the first 200 as a 'good foundation' to build on.The new rules will also help to stamp out financial service malpractice within the profession as each qualified person is individually scrutinised and approved by the Society's authorisation casework committee.It is hoped practices such as 'churning', where the client is involved in an unnecessarily high frequency of transactions, will become a thing of the past.THE SOLICITOR AND FINANCIAL SERVICESThe Financial Services Act took effect in 1988 and requires anyone undertaking investment business to be properly authorised.

This is to be done through self-regulating organisations like the Personal Investment Authority (PIA) or through recognised professional bodies, like the Law Society.

Overseeing all these regulators is the Securities and Investments Board (SIB).As a result the Society, under SIB supervision, set in place its own training and competence scheme.

Bob Butler, head of the Society's monitoring unit, describes the SIB requirements as 'extremely rigorous'.

A few firms of solicitors are authorised by PIA because these firms have more than a 20% turnover of financial service bus iness.

The Society can only authorise a firm if its income from investment business does not exceed 20% of its total income.The Society differentiates between discrete and non-discrete investment business.

Non-discrete investment business includes advice which is given incidentally and arising out of legal work handled by the firm.

However, they still need to be authorised and require an investment business certificate.Firms can also provide clients' financial services by using an independent financial adviser or a stockbroker.

These must be independent professionals not tied to the law firm.

These firms also are not to be subject to the new regime introduced on 1 November.Discrete investment business is mainstream investment business which is performed by the firm using entirely its own expertise and its own resources.

This has traditionally been performed by accountants and stockbrokers, but increasingly solicitors are gaining the requisite financial skills and are being authorised to do this work.

For a firm to be able to offer in-house discrete investment business it must have a partner or an employee who is qualified as a financial adviser.Firms can be authorised in any or all of three areas of discrete investment business.

These are:-- retail branded or packaged products which include life policies and pensions plans;-- securities or portfolio management mainly stocks and shares; and-- corporate pensions.Firms can only do business in the area in which they have a qualified person.'It is very unlikely that any qualified person will have sufficient expertise in all three areas.

Most likely a firm providing across the board discrete investment business will have two or three qualified persons,' says Mr Butler.

The Society is pushing to have the 20% limit increased to allow more firms to expand their investment business while remaining under the authority of the Society.Solicitors requiring more information about the training and competence scheme should write to Keith Boxley at the Law Society, Ipsley Court, Berrington Close, Redditch, Worcestershire B98 0TD, DX 19114 Redditch.

Those wishing to join Solicitors Financial Services should contact Richard Pearce, Solicitors Financial Services, 50 Chancery Lane, London WC2A 1SX; tel 0171 320 5698.

Those interested in joining or finding out more about Solicitors for Independent Financial Advice should write to Ian Muirhead, SIFA, 10 East Street, Epsom, Surrey KT17 1HH, DX 30708 Epsom.

The Association of Solicitor Investment Managers can be contracted by writing to Heather Martin at ASIM, Chiddingstone Causeway, Tonbridge, Kent TN11 8JX, DX 30011 Sevenoaks.