The Law Society has taken the unprecedented step of urging its members to ignore the Solicitors Regulation Authority's (SRA) new rules on recommending financial advisers to clients, warning that they could expose solicitors to negligence claims.
The SRA's board yesterday agreed to 'liberalise' the body's rules on recommending or referring financial advisers to clients.
The new rules mean referrals can be made to advisers who are not independent. Previously, solicitors could only recommend independent financial advisers.
The Society warns that solicitors could get tangled up in mis-selling scandals if they advise clients to use financial advisers who may benefit from selling particular products.
Law Society chief executive Desmond Hudson (pictured) said: "From the outset, the SRA's proposals ran the risk of leaving the profession ill equipped to advise clients on which financial adviser to use for the product that they wish to procure, given a choice of a range of providers with differing interests and motivations.
"The inevitable consequence will be that solicitors may become more open to negligence claims based on that recommendation or referral or that the profession as a whole becomes embroiled in the type of mis-selling scandal that has plagued the financial services industry in recent times.
"The provision of independent advice has historically been one of the fundamental tenets of the profession. As such we would urge solicitors to disregard the the SRA's liberalisation in this area and continue to only recommend IFAs.
"On this issue, under the new rules, solicitors will not be penalised for exercising discretion. We urge them to use that discretion to only refer and recommend IFAs to clients to avoid the risk claims."
The Society pointed out that although the SRA had consulted on this issue, questions were being raised as to the effectiveness of that exercise.
Hudson added: "All eyes will be on the SRA in January when it publishes the consultation responses on this issue. We hope that in the interests of legitimacy there is a clear expression of support for the SRA's proposals in this area from stakeholders other than those in the financial services industry who stand to benefit from liberalisation.
"If there has been significant informed opposition to the SRA's proposals, it will bring into serious question the legitimacy of the consultation process as anything other than a paper exercise conducted for form. It is not sufficient to cite an apparent incompatibility with outcomes-focused regulation as an absolute rationale for diluting regulatory safeguards for both clients and solicitors."
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