Proposed SRA rule change over tied advice is criticised
Solicitors are to be allowed to refer clients to tied financial advisors, in a controversial change to professional rules that is almost certain to go ahead.
Currently, solicitors can only refer clients to independent financial advisors. However, the Solicitors Regulation Authority (SRA) was due this week to recommend that its board allow solicitors to refer clients to any financial advisor, even where they are “tied” or affiliated to one or more particular institutions or products. Solicitors will need to ensure clients are involved in the decision-making leading to the referral.
Agnieszka Scott, SRA director of policy, says: “This represents the best fit with outcomes-focused regulation as solicitors, as highly qualified professionals, would be free to assess and discuss clients’ needs, not be restricted by a prescriptive rule.”
Critics of the code of conduct change argue it breaches the professional principle that advice should be independent, and could lead to mis-selling claims being brought against solicitors.
Ian Muirhead, chairman of Solicitors for Independent Financial Advice, says relaxing the rules is wrong “in principle”.
“The ethics of the profession are based on independence and being able to give conflict-free advice. Wrong referrals will come back to bite solicitors in terms of damaging their reputation and the reputation of the profession as a whole, and will lead to claims on the solicitors’ compensation fund.
“There is no way solicitors will be able to explain the merits of the different advisors to clients. They will be tainted by the quality of the referral, and implicated in bad advice. It puts solicitors in an invidious position.”
The Law Society has also warned of a risk that solicitors could face negligence actions if they refer clients to an advisor who gives poor advice.
The reason for the rule-change is the new retail distribution review regime being introduced by the Financial Services Authority on 31 December 2012, under which independent financial advisers will have to tell clients whether they are truly independent or tied to one or more products. The SRA consulted on its proposals in July.
