In a recent case before the Solicitors Disciplinary Tribunal concerning financial services work, the tribunal, in fining a solicitor £2000 plus costs, commented on the need for him correctly to supervise specialist staff (see [1993] Gazette, 20 October, 41).The solicitor had employed a non-solicitor financial services specialist without acquainting himself with the various rules and regulations.

The tribunal expressed the view that, as in any other area, a solicitor could not be excused responsibility because he had placed reliance upon the knowledge and experience of another person.

Subsequently the solicitor was held entirely responsible for breaches of the Solicitors' Investment Business Rules (SIBR) and Solicitors Practice Rules arising from the work of the specialist.Whilst many firms employ non-solicitor financial services specialists who successfully combine the provision of investment business advice to clients with the standards expected of a solicitor's practice, the Law Society monitoring unit has identified a number of instances where this is not the case.

Problems which arise are often due to the firm's failure to exercise proper supervision over staff in an area where the partners do not have a good understanding and have not properly acquainted themselves with the regulations governing investment business.In the case referred to above, a financial adviser was employed for a period of nearly two years.

The adviser had previously been employed by a life office and, due to the solicitor's lack of knowledge of the financial services market and relevant regulations, he did not exercise any supervision over the employee.

As a result of this failure, breaches arose of most of the relevant SIBR, Solicitors Practice Rules and solicitors publicity code.The tribunal decided that:'The respondent was entirely responsible for those breaches.

Although the tribunal is able to accept that he was not himself personally culpable, the respondent made a very serious mistake when he entered the field of financial advice without fully acquainting himself with the rules and regulations relating thereto.'As in any other area, a solicitor may not excuse himself from responsibility because he has placed reliance on the knowledge and experience of another person.

The Law Society has the status of a regulatory body under the terms of the Financial Services Act, and that function has to be taken seriously.

If solicitors do not recognise the Law Society's regulatory function, and if the Law Society is seen in any way to condone breaches by members of the profession, the status of the Law Society as a regulatory body for these purposes is placed in jeopardy.

That is an unsatisfactory state of affairs and has the potential to create considerable unnecessary difficulty for those solicitors conducting investment business properly and within the constraints placed upon them.'In May 1990 the Securities and Investments Board (SIB) published its consultative paper No.

40 on 'Training and competence in the financial services industry'.

The Law Society, as a recognised professional body, SB responded to this by publishing, in July 1992, the 'Good practice guidelines on the recruitment and supervision of employees undertaking investment business'.

These were published in Professional Standards Bulletin No.

7 and now appear as an nex 26I to The Guide to the Professional Conduct of Solicitors 1993, 6th edition ('the guide').

The guidelines embody the statements made in the SIB consultative paper concerning recruitment, supervision, disciplinary procedures and remuneration.It is recommended that in recruiting a non-solicitor financial adviser, firms should consider the profile of the person they wish to appoint.

This should include qualifications and experience in the appropriate products, and also whether the adviser has been employed in the independent or 'tied' sector.

Advertisements for the post should state the required profile and, whilst in-depth interviewing will assist in assessing a candidate's capabilities, the need to obtain references from both previous employers and any Financial Services Act regulatory body they claim to have been authorised by must be stressed.The guidelines also recommend that once an appointment has been made, clear lines of reporting and accountability to a partner should be established.

The failure to supervise has been a common weakness in matters reported to the Solicitors Complaints Bureau.In one case, a firm employed a financial adviser who then operated unsupervised in a branch office.

Whilst the adviser generated some profits for the practice, the standard of advice was never questioned by the partners and resulted in a number of clients being recommended to invest in a product which did not really exist, but was merely a 'scam' being operated by a friend of the adviser.

As a result, clients lost a total of £130,000 which led to claims on the Solicitors Indemnity Fund.In another matter (see [1992] Gazette, 8 January, 46) the tribunal fined a solicitor a total of £7000 after employing a financial adviser who advised clients and arranged investments for them without regard to the provisions of the SIBR.

Again, the solicitor had left the adviser to operate this side of the practice without providing adequate supervision.The role of training in supervision arrangements should also be considered.

It is necessary to make non-solicitors fully aware of the environment in which they are to operate.

The SIBR will contain provisions with which an adviser should already be familiar, but it is important that they will be acquainted with all of these requirements as well as the Solicitors Practice Rules and principles of conduct.The financial services industry employs staff largely on a commission-only basis, but this can, and has, led to the over-selling of investment products to clients.

Whether remuneration is by commission or, as recommended, by salary, it is important that the firm operates adequate systems to comply with practice rule 10 - receipt of commissions from third parties.

The failure by firms to ensure that the client's informed consent to it retaining commission is properly obtained is a common problem.

Although thorough guidance on the provisions of rule 10 has been given in Professional Standards Bulletin No.

6, and as annex 14C in the guide, breaches in respect of both investment business and general insurance commission continue to be found and are resulting in a number of referrals to the SCB.Two other firms have also recently been investigated by the monitoring unit where substantial problems have arisen through their failure to adequately supervise in-house financial advisers.

In the first case, the firm was keen to expand into the potentially lucrative financial services market, and established at great cost a financial services department employing over ten staff.

However, proper supervi sion was not exercised and the management of the department, including the budgetary control, was largely left to the financial services staff.Subsequently it was found that financial advisers had been holding themselves out as partners in correspondence, they had made unsolicited telephone calls to attract business, and had been advising clients to dispose of perfectly adequate investments and replace them with others to generate more commissions, known as 'churning'.

A total of £200,000 of commission was retained by the practice in breach of practice rule 10, and the advisers ran up an overdrawn office account balance of £90,000.In the other case, the firm employed an adviser who was well known to some of the partners and locally within the town.

Although he reported to partners' meetings, due to their lack of understanding of his work no formal supervision arrangements were put in place.

The adviser stole money from the clients he was entrusted to advise, and eight clients lost a total of over £100,000.

He also advised clients to dispose of adequate investments, replacing them with others he had arranged.

The commissions generated from these matters were again retained without complying with practice rule 10, and in some cases had been paid to introducers in breach of s.2 of the solicitors introduction and referral code.

The police were also involved in this matter.As a result of the SIB consultative paper, arrangements for the introduction of formal training and competence standards across the financial services industry are now well advanced.

In due course, firms wishing to undertake discrete investment business (DIB) will need specific authorisation to do so.

This will only be granted to firms the personnel of which includes someone with the necessary competence.The Law Society has established an authorisation sub-committee, the membership of which includes practitioners currently undertaking DIB, who will be responsible for assessing the ability of people, based on previous experience, to conduct discrete investment business and the sub-committee is expected to begin looking at exemption applications in the spring.Firms which do not currently have staff who are exempted on the above basis will need to ensure that at least one member of the firm holds an approved qualification if they wish to undertake DIB.

Some industry-wide qualifications may provide the basis for exemption, although holders of these may be required to undergo further training on the Society's investment business and practice rules.

The Law Society is, however, establishing its own examinations as part of its specific training and competence arrangements to be approved by SIB.Financial services is an area of work which some firms have found to be a useful and profitable addition to their legal services.

Many of these firms have, by considering both their own needs and those of their clients, employed financial advisers who are competent and complement existing staff.

After the implementation of SIB's training and competence requirements, improved standards of those employed to provide such services will be reflected across the industry as a whole.

However, the need for adequate standards of recruitment and supervision will remain.Firms which are not confident that they will be able fully to comply with the Law Society's compliance requirements should consider carefully whether they should DIB.

If they have any concerns about the arrangement being operated they can contact the monitoring unit's investment business officer who visited the firm.

Those who are considering employing an adviser can obtain guidance from the professional ethics division.

Some firms feel more comfortable using the expertise of a permitted third party, as defined in the SIBR's rules.

The Law Society's Company Solicitors Financial Services is one source of this service, but some firms have made successful arrangements with local independent brokers with whom they are already familiar.

Whether firms undertake financial services work in-house or use an external adviser, those that provide it in a competent manner should benefit from the rewards.