Since the introduction of the Financial Services Act, the term 'best advice' has become familiar to most firms of solicitors.

For a firm which engages in discrete investment business (DIB) it is of vital importance.

Such a firm must be clear as to the measures which it is required to take to ensure that clients receive best advice.

In addition, the firm must be able to demonstrate that it is meeting fully the requirements of the Solicitors Investment Business Rules (SIBR).The Law Society's monitoring unit can visit all firms authorised by the Society to undertake investment business that is regulated by the Financial Services Act.

The majority of these firms do not, however, undertake DIB as defined in the SIBR.

As a result, these firms do not need to comply directly with the provisions of the SIBR relating to best advice .

Usually, firms avoiding DIB will rely upon advice provided by independent brokers acting as 'permitted third parties'.

These brokers will be under an obligation in their own rules to provide best advice.The term 'best advice' is commonly used to describe the general provision of good financial advice.

However, as it is used in the SIBR it has a more specific meaning.

The Securities and Investments Board has made it clear that it regards the essence of best advice as involving two main elements.

First, a wide ranging and up to date review of the market for the investment products being recommended.

Secondly, a recommendation which indicates that following the market review the adviser knows of no product which better suits the requirements of the client.At first sight this appears quite straightforward.

However, a firm undertaking DIB needs to be clear as to what the monitoring unit would expect to see on a visit in order to have demonstrated to it that best advice has been provided to clients and that the requirements of the SIBR have been fulfilled.The starting point when considering best advice is to recognise that it is not a concept which stands in isolation.

It is dependent on compliance with other areas of the SIBR and, in particular, those relating to the requirement to 'know your client' and to assess the 'suitability' of investments and investment transactions.

Until these requirements have been met, the obligation to provide best advice, which is contained in appendix 7 of the SIBR, cannot be fulfilled.

Appendix 7 only applies to 'specified investments' (as defined in the SIBR).

These are basically life policies, unit trusts and unit trust based personal equity plans (PEPs).

The majority of firms which carry out DIB involve themselves with these types of investments.The monitoring unit will expect to see evidence that a firm has undertaken the 'know your client' and 'suitability' procedures required by r.9 of the SIBR.

An appropriate 'fact find' process should have been carried out with all relevant information about a client's personal and financial situation having been recorded and filed in a central records system.

Proper consideration must have been given to the suitability of the investment vehicle recommended to the client bearing in mind the client's requirements which have already been established.

For example, when considering the repayment of a mortgage it is not acceptable to recommend an investment such as an endowment policy without having first considered alternative investments and other methods of repaying the mortgage.

In addition, the risk profile of the client must have been assessed and the client advised fully of the risks associated with the investment being considered.

Once compliance with these requirements has been verified by the monitoring officer, consideration will be given to establishing that best advice has also been provided.Monitoring officers are required to establish that firms have adequate sources of information in order to undertake a proper review of the market for the products being recommended.

This information must be sufficiently wide ranging, up to date and authoritative.

There is a great deal of information available about the performance and standing of life offices and unit trust operators and the products which they provide.

This information is freely available and published in a variety of formats.

In addition to the well known periodicals and trade press, there are many electronic data systems available.

Relevant product information provided by life offices and unit trust operators should also be considered.

Firms which fail to acquire a sufficient level of information of this type will find great difficulty in convincing monitoring officers that they are properly equipped to provide clients with best advice.

A firm that merely obtains quotations for an endowment policy, for instance, from 'three top life offices' and then lets the client select one, will not be satisfying the best advice obligation.

In such a case it is unlikely that they will even be acting in the best interests of the client.The main factors to consider when undertaking best advice are generally well understood.

Past performance is an obvious criterion but it is only one of many.

Others factor including the financial strength of the investment provider, the level of charges to be incurred and fund management expertise are all of direct relevance.

Sources of this information include the trade press and reports produced by government departments and other bodies.

The Securities and Investment Board has stated that non-financial considerations also apply.

Therefore, the level of service and the administrative efficiency of the investment provider may be relevant.

Firms need to be able to demonstrate that they have access to all relevant sources of this information and that it is regularly up-dated.The next stage in the monitoring process is to establish that relevant personnel within the firm possess the ability to apply the information.

The firm must ensure that any adviser it employs is sufficiently skilled so that he or she can assess and match the client's requirements with the particular investment product and provider which most closely meets the client's needs.Monitoring officers do not normally attempt to 'second guess' the advice given by the firm.

They do, however, expect to see evidence which demonstrates that a firm is equipped to provide best advice both in terms of information systems and expertise.

In addition, monitoring officers must be satisfied that the advice provided to clients meets the needs of those clients in all respects and that the firm is acting in the best interests of the client at all times.Appendix 7 contains a requirement that a record of 'the results of enquiries made' when undertaking best advice be made and retained by the firm.

Many firms may not be clear as to the form which these records should take and the information which needs to be recorded.

The record which a monitoring officer will expect a firm to produce should include the following.

First, it should indicate the sources of information used by the adviser.

Secondly, there should be an indication that alternative products and providers have been considered and subsequently rejected.

Thirdly, there should be some indication of the reasons for the selection of the particular investment.

Finally, some clearly defined link must be shown between the particular needs of the client and the product recommended by the adviser.

As an aid to compliance it is suggested that firms devise a pro forma on which to record all this information.

This record can be kept on the client file together with copies of reports used; quotations obtained and other information can be attached.The onus is on the firm to demonstrate compliance with the best advice requirement and this can only be done by having clearly defined record-keeping procedures.

These records need to be kept for a period of three years.

During this period, of course, staff changes can occur and a firm may be in difficulty if it is unable to demonstrate compliance because a f ormer member of staff failed to keep adequate records.The monitoring process involves an inspection of client files and corresponding accounting and central register records.

Monitoring officers will wish to establish that, in each case examined, full consideration has been given to the 'know your client' process, the suitability of particular investments and that risk factors have been assessed and appropriate warnings given.

Where the investments under consideration dictate that the best advice requirement applies, there should be evidence that appropriate information systems have been used by the adviser and the information applied correctly.

An appropriate best advice record should also have been made.If breaches of the SIBR are discovered, these will be brought to the firm's attention and appropriate remedial action agreed.

If serious or continued rule breaches are apparent, particularly those which affect adversely the interests of clients, the monitoring unit may refer the matter to the Solicitors Complaints Bureau.

This in turn could lead to disciplinary action being taken or conditions imposed on the firm's investment business certificate.Where a firm employs a financial services specialist, the principals of the firm are, of course, responsible for the actions of their employee.

Good practice guidelines on the recruitment and supervision of employees undertaking investment business were issued in July 1992 by the Society and sent to all authorised firms.

They are contained in annex 26I of the Guide to the Professional Conduct of Solicitors 1993 (sixth edition).

Arrangements for the supervision of such employees must include checks by a principal of the firm responsible for financial services to establish that clients are at all times being provided with best advice.