The relationships between Private Client Solicitors and Financial Advisers are recognised as mutually beneficial.
The clients of each profession often require the services of the other. It is therefore of no surprise to find that most Private Client Solicitors have at least one Financial Adviser that they have worked alongside for a significant proportion of their career, who they would not hesitate in recommending to any of their clients. Likewise, the Financial Adviser would recommend their preferred Solicitor contacts to their clients.
Recommendations cannot however be made solely in return for invites to boozy networking lunches. The SRA governs the terms on which Solicitors can make referrals to Financial Advisers. Up until January 2013, the SRA Handbook stated that “If a client is likely to need advice on investments, such as life insurance with an investment element or pension policies, you refer them only to an independent intermediary”. The change in January 2013 did however relax the rules significantly and opened up the opportunity for Solicitors to refer Restricted Financial Advisers. The rules as they stand currently are as follows:-
- Whenever a Solicitor recommends that a client uses a particular person or business, their recommendation is in the best interests of the client and does not compromise their independence;
- Clients are fully informed of any financial or other interest which the Solicitor may have in referring the client to another person or business;
- Clients are in a position to make informed decisions about how to pursue their matter;
- The Solicitor is not paid a prohibited referral fee
It is clear therefore that at a very basic level, Private Client solicitors ought to be explaining to their clients the difference between Independent and Restricted Financial Advisers, in order that their clients are in a position to make informed decisions.
I would propose that there are two main factors that any client would consider as important, whether the advice is sought in a personal or fiduciary capacity. Firstly, the advice offered has to suit that client’s needs. Secondly, the advice must be provided at a reasonable cost.
In terms of the suitability of advice, it should be kept in mind that an Independent Financial Adviser must consider the whole market in determining which product is best for a client’s needs, whereas a Restricted Financial Adviser may make recommendations from a small portion of the market, with some advisers recommending products from just one provider. Financial Advisers may also be classed as restricted where they consider products from all providers but only consider/advise upon one product type. In terms of suitability therefore, an Independent Financial Adviser ought to be suitable to advise in any circumstances, whereas the suitability of a Restricted Financial Adviser will depend upon the nature of the particular adviser’s restrictions and what impact, if any, they will have on the advice that they can provide to the client.
Irrespective of the type of advice provided, it would be advisable to ensure that their Financial Adviser is authorised by the Financial Conduct Authority. The qualifications and experience of a Financial Adviser should also be considered, although it is worth noting that there are a number of routes to qualification that are recognised by the Financial Conduct Authority. There are also several optional additional qualifications or hallmarks that Financial Advisers may hold, such as the title of Chartered Financial Planner. Such accreditations should be factored into a decision when determining whether a Financial Adviser is best suited to a client’s needs. Most financial advisers will be more than happy to discuss their experience, qualifications and other accreditations and any hesitance to do so should cause alarm bells in most circumstances.
In terms of the cost of financial advice, the counter-argument posed by some Restricted Financial Advisers is that the lesser amount of research required in providing restricted financial advice saves time and ultimately means a lower cost to clients. I have found difficulty in finding evidence of this and in fact there is a lot of negative press about the excessive charges levied by the UK’s largest financial advice provider, which has in excess of £100bn of funds under management and provides restricted financial advice. Furthermore, whilst independent advice makes up 88% of the advice provided by financial adviser firms in 2018, independent advice only made up 63% of revenue generated by those same firms1. This is rather alarming and would seem to suggest that, on the whole, restricted advice is being charged at a higher rate than independent advice.
If Private Client Solicitors are to refer their clients for financial advice therefore, it would be advisable to equip themselves with as much information as possible about the Financial Advisors with which they work and the differences between the two types of advice. I would encourage all Private Client Solicitors to conduct a due diligence exercise and ensure that they are satisfied that, irrespective of the type of advice they are recommending, that they consider it meets all of the SRA’s outcomes described above. I would suggest extra caution need be taken where recommending a Restricted Financial Adviser to ensure regulatory compliance, although the rule change clearly acknowledges that there are instances where the use of a Restricted Financial Adviser is appropriate.
With that said, I have not seen a huge shift in the industry away from referrals solely to Independent Financial Advisers, nor do I foresee this happening in the near future. I suspect that is due to a cocktail of traditionalism, lack of knowledge surrounding the changes made in 2013 and long-established relationships with Independent Financial Advisers. Perhaps we will see more of a push from Restricted Financial Advisers to try and engage more closely with the legal sector and demonstrate more clearly where a recommendation to them could be the best choice for our clients?
