A recent rule change by the Solicitors Regulation Authority (SRA) means solicitors are now permitted to conduct activities that are not "reserved" to themselves and other authorised and regulated lawyers through separate businesses, writes Ian Muirhead.
In the lexicon of the legal profession, a solicitors' separate business is a business in which solicitors are involved financially, but which does not conduct activities that are reserved to solicitors - notably litigation, probate, the filing of Land Registry documents and notarial services. Importantly, the term includes joint ventures with non-lawyers such as financial advisers.
All business conducted by solicitors within an SRA-regulated firm is subject to SRA regulation, regardless of whether it constitutes a reserved activity. So, in permitting solicitors to conduct non-reserved activities through firms that it does not regulate, the SRA is magnanimously giving away part of its regulatory turf.
The regulator's stated reason for doing so is to create a level playing field between solicitors and other providers of legal services. There are currently no fewer than 11 different types of professionals whose representative bodies - including the Institute of Chartered Accountants in England and Wales, the Chartered Institute of Legal Executives and the Council of Licensed Conveyancers - are empowered to license their members to conduct some or all of the reserved activities. There is also a growing number of unregulated providers of services such as will-writing, whose lack of regulation gives them a distinct cost advantage.
What the rule change means for financial advisers is they can now offer their solicitor connections a means of segmenting their businesses - for example, by continuing to conduct high-quality wills work through their law firm, but referring lower-quality wills to their adviser joint venture, to be conducted on an unregulated basis through the adviser unit.
There are, predictably, a number of caveats. The SRA requires that, when making any such referral, the solicitor must obtain the client's "informed consent". Helpfully, the Legal Services Board, the overarching legal regulator, has stated the SRA will not interpret the words "informed consent" prescriptively - in other words, the consent need not necessarily be obtained in writing, though this is clearly preferable.
The SRA has stated that, if a matter is shared with a separate business or the referral is for the primary purpose of the separate business providing a legal service, then the client needs to be made aware of the differences in regulatory protection and redress between the two businesses.
So, the concept of informed consent includes the need for the client to understand the differences in safeguards available and the consequences of those differences. Specifically, clients should be informed that the work carried out by the separate business will not be regulated by the SRA and that:
* There will be no right to complain to the Legal Ombudsman;
* There will be no right to claim on the Solicitors' Compensation Fund;
* The work will not be covered by compulsory professional indemnity insurance;
* The work will not be covered by legal professional privilege; and
* The protections in the SRA Accounts Rules in relation to client money will not apply.
'Client care letter'
The information provided to the client will need to be at an appropriate level of detail and explicitly drawn to the client's attention - for example in a ‘client care letter' - rather than just being one of the terms of engagement or contained in terms and conditions on a webpage.
Also, it would not be permitted for a law firm to share with a separate business work that the client would assume to be part and parcel of the matter on which the law firm had been instructed. The SRA has stated that, in its view, the following would always be regarded as part of the same matter for this purpose:
* The grant of probate and administration of the estate;
* All legal activity in relation to conveyancing;
* All legal activity in relation to the same cause of action in a civil dispute; and
* All legal activity in relation to a family dispute.
The growing number of adviser/solicitor joint ventures reflects their value as a means of developing firm-to-firm relationships, and this new relaxation of the SRA rules provides a further reason for considering this form of association.
Ian Muirhead is chairman of SIFA. For more details on the 2016 SIFA National Conference, which takes place on 16 and 17 June at Whittlebury Hall, Northamptonshire, please click here
