Dave Seager: Are you a safe pair of hands for solicitor referrals?

In my last article for Professional Adviser I referred to the regulatory changes for solicitors that came late in 2019 and considered the reputational risk of solicitor firms not having an established process for referral to third parties, including financial planning partners, when complimentary non legal advice is identified.

I outlined that for the first time the new rules governing solicitor firms have introduced a firm code of conduct, alongside that for individual solicitors. Under the new dual code system, the Solicitors Regulation Authority is very clear that it expects the management and, in particular, the Compliance Officer for Legal Practice (COLP) within the firms they regulate to be installing processes and systems to facilitate best practice and instruct individuals within their businesses.

Therefore, when it comes to where solicitors refer clients who require complimentary financial planning, firms should be reviewing the present recipients of such referrals. Indeed, they must be conducting thorough due diligence on existing and potentially new partners.

This process is crucial under the new shortened standards and regulations because the SRA will expect solicitors to be able to demonstrate to clients why they believe a referral to a third party is in their best interests. The regulator is continually highlighting this so, in the new world, it can no longer be left to individual solicitors to make their own decisions.

The firm has to take responsibility and instigate a firm-wide process to be adhered to by all. Those responsible should also be mindful of the principle of acting with independence and look to establish a preferred list or panel of approved referees, perhaps based on complimentary specialisms, as referring continually to the same third party might be seen to compromise independence.

Therefore, when it comes to a solicitor practice selecting the right financial planning partners to refer to, in the best interests of their clients, what does good look like and what sort of attributes and qualities should be paramount in their research and due diligence?

Independence or impartiality

The Law Society has always recommended that solicitors refer to independent financial advisers but in reality, the financial services sector has changed considerably since the Retail Distribution Review (RDR) and there are excellent financial advisers offering wide-ranging, conflict-free and impartial advice, without being classified as independent.

In SIFA Professional's view, a large choice of solutions and products will allow financial advisory firms to offer clients quality advice that is in their best interests but a firm with narrow restricted panels, that they are contractually obliged to utilise, may compromise best interests.

A key question that a solicitor might ask would be, are you independent or whole of market? If your firm is ‘restricted' it is a case of demonstrating how constricted your operation is and being able to explain how you are still able operate on a whole of market basis.

Qualifications

One professional firm would want to and should expect to refer their clients to similarly highly qualified professionals. All financial planning professionals are well qualified since RDR, but some firms and individuals strive for higher standards than the required level, and these are the partners a solicitor might hope to seek out.

Solicitors are aware of the high level of academic attainment and professionalism attached to Chartered Status so if your firm or individual financial planners have reached this level be sure to advise them.

In addition, it would be wise for firms to highlight qualifications or accreditations that they can boast and are relevant to working with solicitors in certain client arenas. Examples would be the accreditation for the Society of Later Life Advisers, which demonstrates not only that the financial planner is qualified to advise on equity release and long-term care but also has the soft advisory skills to work with elderly or vulnerable clients and their families and attorneys.

Resolution similarly offers accreditation to financial planners to demonstrate their expertise and empathy to work with legal professionals in the divorce arena. You may also have STEP (Society of Trustee and Estate Practitioners) Financial Services qualified advisers within your firm, so always ensure you promote these accreditations to add further credibility to your proposition.

The advice process

A firm's advice process is of particular interest because it is that to which your solicitors will be entrusting their clients. Genuine financial planners will probably be basing their client advice around cashflow modelling having understood the individual, the couple's, or indeed the trust's needs, goals and aspirations.

To refer clients with confidence it is important the referrer understands not only what their client can expect beyond the particular need identified being addressed but what happens thereafter. It is sometimes difficult for solicitors to develop an ongoing relationship with a client, but a good financial planning partner will involve them on an ongoing basis when they review the mutual client's portfolio and financial plan.

Given the above, be sure to fully explain your advice process, how you manage clients, how often you review and how you might include the solicitor in that process, either by face or by a secure flow of information

It is useful for the solicitors to understand what questions you ask in your fact-find for new clients that might lead to you referring work to them and their firm. If this is to be a true partnership, they must understand the questions you ask their clients about wills, powers of attorney and indeed trusts. What are the trigger points in your financial advice or planning process that will require you to involve them and that you will?

Fee-based remuneration

Potential solicitor referrers will need to be comfortable and understand how clients they pass to you will be charged for the advice they receive. Therefore, you should be open and honest about how you charge for the different types of advice, whether there is a product or solution or just a report and show them your terms of business to reassure them.

Other considerations

Obviously, all the above is crucial but there may be other factors important to the solicitor firm you hope to work with. They may wish a partner to be local and one that has been established over a long period. They may be a firm impressed by kite-marks and awards - and why not?

However, one thing they will not necessarily be able to see or research in advance is whether you, as the financial planning firm under consideration, understands them, understands what processes they should have in place under the new SRA Standards & Regulations and how they need to work with you compliantly and professionally.

So, preparing a due diligence document on your business, taking into account all of the above will assist them in their research and ensure you are part of their referral process and that they can be confident in that decision.

Dave Seager is managing director of SIFA Professional

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