Solicitors need to take real care with restricted referrals

The Solicitor’s Regulation Authority (SRA) has ruled that solicitors can make referrals to any type of financial adviser, ‘regardless of whether or not they are tied to a particular institution’.

This ruling followed a period of consultation and comes ahead of major changes to the regulation of retail financial services on 31st December 2012, in the form of the Retail Distribution Review.

From this date, independent financial advisers will need to a) consider a broader range of retail investment products, b) provide unbiased and unrestricted advice based on a comprehensive and fair analysis of the relevant market, and c) inform its clients before providing advice that it provides independent advice.

Any firm that does not meet these standards of independent advice will offer ‘restricted’ advice.

Under current rules, solicitors should only make referrals to independent financial advisers.

The SRA preferred the new option of clients choosing what type of adviser they want after having discussed it with their solicitor. This will open the door for referrals to restricted advisers, which might not be in the best interests of clients or the solicitor.

We are asking our solicitor connections to only make referrals to independent financial advisers from 31st December 2012.

We believe – and I am sure most solicitors will agree – that independent financial advice represents the gold standard of financial advice and will ensure that their clients are best served by the financial advisers they recommend.

While some restricted advisers will be able to offer a service that mimics that offered by independent advisers, others will have very limited restrictions imposed on the advice areas they cover and the products they can recommend to meet client needs.

The additional due diligence that solicitors will need to undertake before referring to restricted advisers will be onerous, resulting in a big risk that unsuitable referrals will be made to tied or multi-tied financial advisers who sell products rather than provide best advice.

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