The Law Society's professional ethics division gives confidential guidance on matters of professional conduct, including advice on the Solicitors' Investment Business Rules 1995 (SIBR).

Alison Matthews anwers some common questions relating to investment business.Do I need to be authorised?Few firms of solicitors will avoid the need for authorisation.

If conducting probate/trust, matrimonial or corporate work or acting as an attorney or a receiver, then practitioners are likely to be conducting investment business.

A criminal legal aid practice is unlikely to need authorisation.Practitioners need to consider schedule 1 of the Financial Services Act 1986 before deciding whether they require authorisation.

Copies of schedule 1 and further guidance are available from the Law Society's professional ethics division; tel: 0171 242 1222.What is investment business?Investment business, as Bryan Wordsworth pointed out (see [1997] Gazette, 12 February, 30), is defined by the Financial Services Act as involving a business, an investment and a specified activity.-- Investments include stocks and shares, unit trusts and life policies with an investment element.

Principle 27.02 of The Guide to the Professional Conduct of Solicitors (1996 -- 7th edition), gives an overview of what is and what is not an investment.-- The activities that may constitute investment business are set out in principle 27.03., including dealing, arranging, managing and advising on investments.

The new activities of sending dematerialised instructions and custody of investments were introduced in July 1996 and June 1997 respectively.What is discrete investment business (DIB) and why is it important?DIB is essentially mainstr eam investment business where you are 'advising' clients directly on investments and 'making arrangements' based on your own expertise and knowledge.

Your firm is prohibited from conducting DIB unless it has a category 2 investment business certificate from the Law Society.

Category 2 certificates are only issued to firms with a 'qualified person', as defined in rule 20 of the SIBR.

It is important to know what DIB is because the rules are more detailed for DIB.How do I avoid DIB?There are two main exceptions to DIB:-- The 'incidental' exception applies where the investment business is subordinate to the main purpose of the retainer and is particularly relevant for probate and corporate work.

This exception does not apply to packaged products eg, life policies and unit trusts except for sales during probate.

Guidance on corporate finance activities appears at annex 27 I of The Guide to the Profesional Conduct of Solicitors.-- The 'permitted third party' exception.What is a permitted third party (PTP)?A PTP is an authorised and independent financial adviser used by the firm to avoid DIB.

When using the PTP exception, you must act as a disclosed agent for a named client.Rule 10(6) and chapter 5 of the SIBR 1995 contain the limited compliance requirements.Does the Solicitors' Introduction and Referral Code apply when I am using a PTP?Yes, the Solicitors' Introduction and Referral Code 1990 (Annex 11B of The Guide to the Professional Conduct of Solicitors) applies to the introduction of clients by third parties to solicitors and by solicitors to third parties.Solicitors must always retain their professional independence and act in the best interests of their clients.

If you recommend that a client use a particular firm, you must make the recommendation in good faith, judging what is in the client's best interests.

You cannot have any kind of exclusive or restrictive arrangement.If I refer clients to PTPs, do I need a consumer credit licence?The Society has a group licence (copies available from the Law Society's professional ethics division; tel: 0171 242 1222) covering credit brokerage by solicitors, limited to activities arising in the course of practice, (see principle 25.09, note 8 of The Guide to the Professional Conduct of Solicitors).Solicitors who advertise that they are able to arrange mortgages must comply with the Consumer Credit (Advertisement) Regulations 1989, see note 9 to principle 25.09.But do I not have to keep complicated records if I am conducting investment business?Rule 16 of the SIBR sets out the record-keeping requirements for non DIB.

(As they constitute good practice, you probably record the information anyway.)Some of the records must be kept in the same place, which helps the Law Society to monitor more efficiently.

Forms IB1, IB2 and IB3 will help with some record-keeping for the SIBR and the money laundering regulations.

These are available from Marston Book Services; tel: 01235 465 656.

The record-keeping requirements for DIB are more complex.If I am authorised to conduct investment business, must I appoint a compliance officer?Yes, rule 15 requires firms to appoint a compliance officer, who is a partner, a sole principal, or a director.

The compliance officer is primarily responsible for ensuring that the firm has adequate systems in place to comply with the rules.

However, all the partners and directors retain ultimate responsibility.What are the rules about commission?Rule 10 of the Solicitors' Practice Rules 1990 (see principle 14.14 of The Guide to the Professiona l Conduct of Solicitors) follows the position at law.

Solicitors may not make a secret profit.If you want to retain any commission over £20, you must disclose the amount etc in writing to the client.

The client must then agree to you keeping it.Annex 14G of The Guide to the Professional Conduct of Solicitors, contains detailed guidance on commissions.

This often answers questions raised with the professional ethics division of the Law Society.What about the money laundering regulations?The Money Laundering Regulations 1993 apply to all solicitors conducting investment business.

The client's identity must be verified, subject to certain exemptions, and keep certain records.

See principles 3.16 and 16.07 of The Guide to the Professional Conduct of Solicitors.A money laundering information pack is available from the Law Society's professional ethics division; tel: 0171 242 1222.