Solicitors Regulation Authority
19th June 2012
Dear Mr Plant
Open letter to the Solicitors Regulatory Authority on ‘Independence’
We understand that the board of the SRA is due to meet on the 4th July to discuss the legal profession’s view on ‘independence’ in respect of the Financial Services profession and the FSA’s Retail Distribution Review changes due to take place from 1st January 2013. We assume you are aware of the background to these changes and the heavily jargonistic terminology, so for brevity we have not sought to define these terms.
We expect that several firms and professional bodies will have made representations to the SRA, each with their own agenda, and of those that we have seen, the majority seem to be one-sided and motivated by self-interest.
For the record, our firm is currently independent and holds corporate ‘Chartered Financial Planners’ status; I am personally a Chartered Financial Planner and our firm remains committed to independence post-RDR.
However, we note many representations made to the board of the SRA seem to suggest that firms will either be ‘independent’ or ‘restricted’. This is an over-simplification, as it does not make clear that restricted firms can choose to be restricted by advising on;
- all available options but within a narrow range of ‘retail investment products’, and/or by
- offering a limited range of options from all areas of ‘retail investment products’.
It seems clear that by specialising in a specific area of advice (for example retirement or care-fee planning) good consumer outcomes are no more difficult, or less likely, to be achieved in the restricted (products) area. They may however be less likely, or more difficult, to achieve in the restricted (provider) area.
The simplification that ‘independence is best’, is in our opinion, an unfair and unbalanced opinion which is potentially misleading. We note that many of our peers and high profile professional bodies seem to represent a far narrower view. We would propose that any external firm to whom a legal practice makes introductions should be subject to robust due diligence, of which ‘independence’ (or otherwise) should only be one criteria. We understand, like our regulator, that the SRA would not want to be proscriptive, but good practice would be to consider factors such as:
- The specialist areas of advice (or otherwise) of both the firm and the relevant fee-earner dealing with the enquiry
- Level of qualification and experience, particularly in regard to more complex areas, for example Court of Protection or divorce work
- Complaints history, PI claims, Risk Management procedures
- Professional body memberships, awards and third party practice management accreditations (e.g. ISO22222)
Whilst it may be simpler for a legal practice to decide to refer to independent Financial Planners, Stockbrokers, Wealth Managers and Private Banks, we reject the suggestion that independence is the definitive option for solicitors seeking financial professionals. There will be examples of poor advice and detrimental client outcomes from both independent and restricted advisers and to mitigate these risks, legal practices should introduce a due diligence process for firms they introduce to their clients. The process should reflect their own requirements and ultimately demonstrate their criteria for working with other professional firms which will protect and enhance the firm’s reputation and reduce the risk of complaints.
It is telling that, at the time of writing and according to a review by the Financial Times, less than 20% of the largest firms in Financial Services had expressed commitment to ‘independence’ – whether this is a sign of self-interest, poor business planning, or a lack of attachment to the ‘independence label’ is not clear. But it is notable that one of the chief tenets of the RDR – customer agreed remuneration – will largely not affect those who manufacture their own products (many of the banks, for example).
Should you wish to discuss any of the contents of this letter, please do not hesitate to contact us. We would be happy to make a more formal representation to the board should they wish to draw on our experience or to discuss our views.
Alistair Cunningham BSc (Hons) FPFS
Chartered Financial Planner