This art icle expands the guidance in the Law Society's information pack -- Financial Services and Solicitors.

It is intended to help firms understand what they can and cannot do within the designated professional body (DPB) regime.Broadly, firms that now only do non-discrete investment business, should be able to live within the DPB regime, subject to the concern of many corporate finance firms about the effect of the financial promotions order (FPO).

Firms that have used the permitted third party (PTP) route under the current regime have been asking how that method of avoiding mainstream investment business -- and so avoiding Financial Services Authority (FSA) regulation -- fits into the new regime.

There are three issues which inter-relate:-- How does the old PTP route operate in the new regime?-- What has changed in relation to accounting for commissions?-- Does the FPO apply when referring a client to an authorised person (AP) such as an independent financial adviser (IFA)?How does the old PTP route operate in the new regime?Firms will not need FSA authorisation and can operate within the new regime as follows:-- Simply introducing a client to an independent AP, with no further contact in relation to the regulated activity, is excluded from the definition of arranging in the regulated activities order (RAO) (see article 33).-- Arranging deals with or through an AP is excluded from the definition of arranging in the RAO where the transaction is entered into on advice given to the client by an AP (see article 29).

This exclusion is similar to the PTP route.

It would allow a firm to contact an AP and retain an ongoing role, rather than merely making an introduction and stepping out of the process.

This ongoing role could involve, for example, attending meetings, providing information to the AP and presenting the AP's advice to the client.

However, the exclusion is subject to the condition that the firm accounts to the client for any commission.-- The arranging deals exclusion is helpful but there may be times when a solicitor wants to be able to tell the client not to follow the advice of an AP or to be able to endorse a recommendation given by an AP.

This type of advice is likely to fall within the regulated activity of advising but such advice can be given within the DPB regime, provided that the basic conditions are fulfilled, such as the fact that the activity arises out of or is complementary to the legal service provided to the client.

Any arranging could then also be undertaken within the DPB regime.

(see Solicitors' Financial Services (Scope) rules and guidance in the information pack).What has changed in relation to accounting for commissions?When solicitors are providing services within the DPB regime then they are subject to a number of statutory conditions which are explained in the FSA perimeter guidance and in the Law Society's information pack.One of the statutory provisions is that the solicitor must not receive any pecuniary award or other advantage for carrying on regulated activities other than from his client or for which he accounts to his client.

This condition also applies to some of the exclusions in the RAO.

It is similar to the requirements of Law Society practice rule 10 (commissions).Clearly, setting commission off against a bill for legal ancillary services provided to the client causes no problem either under rule 10 or the statutory condition.

However, the FSA guidance (1.9.1) requires more clarity when seeking to account to the client by asking for the client's informed consent to ret ain some or all of the commission.The client must be clear that any commission belongs to them and that they choose what to do with it.

The FSA does not believe that seeking agreement through standard terms and conditions is acceptable but such blanket consent is unlikely to comply with practice rule 10.

However, there are circumstances in which it is less bureaucratic for the client to agree to the solicitor retaining part or all of the commission as their remuneration from the client.

Remember also that the £20 de minimis does not apply.Does the FPO apply when referring a client to an AP such as an IFA?The definition of a financial promotion is wide and can apply when solicitors are arranging through an AP or endorsing the advice of an AP.

Even introducing a client to an IFA can amount to a financial promotion, requiring FSA authorisation unless one of the exemptions in the FPO applies.

This is a significant change and the FPO must be borne in mind in relation to the way firms advertise their ability to refer clients to an AP, the way introductions are made to APs and indeed throughout the relationship between a client and the AP.However, the FPO contains a number of exemptions and the activities of most solicitors when dealing with APs are likely to fall within one of the exemptions.

(paragraph 1.26 of the FSA Guidance for Professional Firms -- The need for authorisation under the Financial Services and Markets Act 2000.)If firms mention in brochures or Web sites that, for example, they cannot provide mainstream investment advice but can refer clients on when necessary, then that too may amount to a financial promotion but may fall within the exemption for generic promotion in article 17 provided that neither a specific authorised person nor controlled activity is mentioned.

To rely on this exemption any statement in the brochures or Web sites must be general.If firms of solicitors have associated or hived off investment business firms which are authorised by the FSA, and want to mention them in the practice's brochure or Web site, then the hived-off firm could be asked to approve the content of the advertisement.Article 55A is also relevant to professional firms that wish, in their brochures, to refer to the fact that they can provide certain exempt regulated activities within the DPB regime.

Article 55A requires specific wording to be contained within the brochure.It is common for firms to refer clients to an AP when necessary.

This might be done in a meeting or telephone call (real-time) or by way of a letter (non-real-time).

As indicated earlier, there is an exemption for real-time promotions concerning introductions (article 15) but there are conditions to this exemption, such as the firm should not receive any form of payment other than from the client, and the AP should not be connected to the solicitor's practice.

Therefore, this exemption cannot be used by firms that have a hived-off investment business firms.Other exemptions which are relevant to introductions are contained in articles 28 and 28A which provide exemptions for one-off, non-real-time communications (for example, letters), and solicited and unsolicited real-time communications.

Broadly, one-off communications, according to the FSA guidance, are those tailored to the individual client.

Therefore, this exemption should apply when the legal work for the client gives rise to a need for advice or some other regulated activity, and the solicitor wishes to introduce the client to an AP who can provide that advice because they are authorised by the FSA, (see 1.26 FSA guidance).There is no doubt that the FPO is complex but firms that currently use the PTP route should be able to find exemptions in the FPO which will enable them to operate in much the same way as they do now.

Firms need to ensure that they are aware of the conditions attached to the exemptions and can keep within them.