Now is the perfect time for financial advisers to assist the solicitors they have connections with, writes SIFA's Dave Seager, to help boost relationships and gain more referrals...
It has long been said that solicitors, as individuals and as businesses, are naturally risk averse. Perhaps this is understandable from a profession that is dealing with the very precise matters of law and used to paying huge attention to detail.
After all, the job is often to find solutions to problems or indeed ensure that there are no unforeseen landmines in the future. The role is frequently about taking risk out of the picture for the client, so of course the solicitor should be risk averse.
While individual practitioners should not be encouraged to individually take risky decisions, in the post Legal Services Act world, where solicitor firms are competing with new entrepreneurial entrants to legal services, the business might have to.
The new Solicitors Regulation Authority's (SRA's) Standards and Regulations, introduced last November at the end of a three-year cycle of simplifying and modernising regulation, insist that firms of solicitors create or adapt processes to assist individual solicitors to attain the highest professional standards.
To do this, the firm's management and the Compliance Officer for Legal Practice in particular should be making decisions on firm-wide processes that all employees will have to adhere to.
The area of third-party referral has traditionally been an area where the risk averse nature of individual solicitors has been evident and understandable. While undertaking legal work, it will often be obvious to a solicitor that the client could benefit from complementary financial advice.
However, the decision to proactively make a recommendation as to where the client should seek that financial advice has been considered a risk. The solicitor might reasonably weigh up whether the referral will reflect positively on them or is there any real benefit to them in making a strong recommendation.
Is it easier to just tell the client that they should seek financial advice but not suggest where from, or indeed to give perhaps the ever popular ‘three business cards' of local financial planners and let the client make the decision themselves, or not, as the case may be.
In my conversations with the SRA it is clear that if a solicitor identifies that a client they are working for needs financial planning advice related to the matter to which they are dealing, they should always make a referral. To not do so might be considered fundamentally at odds with two of the seven principles underpinning the rules, those of acting with integrity and in the client's best interests.
The SRA is also clear that the firm should look to establish a firm-wide process to govern this, which would remove the unwanted personal risk, perceived or otherwise from the individual.
Therefore, now is the perfect time as financial advisory firms to assist your solicitor connections with the due diligence on your business, by providing them with a full background on your impartiality, your qualifications, accreditations, local reputation, service standards etc to ensure you become part of their referral process.
The SRA anticipates that, if a solicitor practice is not entering into a partnership with a financial or fee sharing arrangement, and just referring, that they might have more than one firm in the mix to ensure they are acting with independence.
This being the case, it is likely they should have a preferred list or panel based on qualifications and expertise in different areas of financial planning that will arise from legal work. Matching your specialisms as an adviser with their legal work is therefore an important part of the input to their due diligence.
Encouraging your legal connections to undertake this work now in order to develop a recognised process lessens their risk across the board. Then there is less risk of individuals within the solicitor firm making referrals to an unsuitable financial planner who might reflect poorly on their business.
Also, individual solicitors and employees within that business will feel more confident in making the referral for complementary financial planning, knowing that it is not an individual risk because the referees have been researched and approved by their firm.
Reputational risk is real and understandable, but I would argue that solicitors not making a referral when a client obviously needs financial planning alongside their legal advice is the bigger reputational risk - and now certainly a compliance risk as well.
Dave Seager is managing director of SIFA Professional
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