The Law Society has taken the unprecedented step of urging solicitors to ‘disregard’ their regulatory handbook, as a row brews over liberalisation of referrals for financial advice.
The Solicitors Regulation Authority confirmed this week that it will change the rules to allow solicitors to refer clients to any financial adviser – regardless of whether the adviser is ‘tied’ to a particular institution. At present solicitors must refer only to independent financial advisers (IFAs).
The move sparked an outspoken attack from Desmond Hudson, chief executive at Chancery Lane, who accused the regulator of leaving the profession ‘ill-equipped’ to advise clients on which adviser to use.
He added: ‘The inevitable consequence will be that solicitors become more open to negligence claims based on that recommendation or referral, or that the profession as a whole becomes embroiled in the type of mis-selling scandal that has plagued the financial services industry in recent times.
‘The provision of independent advice has historically been one of the fundamental tenets of the profession. We would urge solicitors to disregard the liberalisation of the Handbook in this area and continue to only recommend IFAs.’
Hudson’s fears were partially echoed by Ian Muirhead, chairman of solicitor IFA trade body SIFA, who said: ‘It is unfortunate that solicitors, who are in no position to distinguish between the respective merits of different categories of adviser, are to be subjected to approaches by those whose advice is conflicted by self-interest.
‘There is a substantial risk that the reputation of the profession will suffer, and that the claims for mis-selling which are repeatedly hitting the Financial Services Compensation Scheme will in future also be directed against the solicitors’ compensation fund.’
Hudson also questioned the credibility of the consultation process.
He said: ‘All eyes will be on the SRA in January when it publishes the consultation responses on this issue. We hope that in the interests of legitimacy there is a clear expression of support for the SRA's proposals in this area from stakeholders other than those in the financial services industry who stand to benefit from liberalisation.
‘If there has been significant informed opposition to the SRA's proposals, it will bring into serious question the legitimacy of the consultation process as anything other than a paper exercise conducted for form. It is not sufficient to cite an apparent incompatibility with outcomes-focused regulation as an absolute rationale for diluting regulatory safeguards for both clients and solicitors.’