Standing up for the Client’s Best Interests

It has long been the case that solicitors and accountants have only been able to refer their clients to Independent Financial Advisers if they require financial advice.

However, the assertion has been made that after 2013 the criteria for independence will be toughened, with advisers who wish to remain independent needing to advise on a wider scope of retail investments.

The latest hiatus in this debate has been caused by reports that FSA head of investment policy Peter Smith has told the professional bodies that “The definition of ‘independence’ you use for the purposes of your requirements does not necessarily need to be aligned with our use.”

There have been repeated allegations of solicitors referring clients to companies which are tied under the current rules, restricted advisers in the new regime. Solicitors commonly refer clients to stockbroking firms, not included in the current regime, but independent or restricted in the new regime according to how they structure their business propositions.

I suspect that this issue has arisen because of scaremongers asserting that independence will be a more difficult standard to achieve post 2013 and that as a consequence there will be only a handful of firms meeting this new standard.

The existing SRA rules make quite clear that “if a client is likely to need an endowment policy, or similar life insurance with an investment element, you must refer them only to an independent intermediary authorised to give investment advice”.

This would without any doubt whatsoever incorporate investment bonds, insured pension arrangements and unit linked whole of life policies commonly used in estate and inheritance tax planning.

This does however leave some gaps, particularly in relation to investments that do not fall within these terms, such as discretionary stockbroker portfolios, or uninsured pensions.

However, the over-riding rule, repeated on several occasions is that “When making or receiving referrals of clients to or from third parties you must do nothing which would compromise your independence or your ability to act and advise in the best interests of your clients.”

Similarly “If you recommend that a client use a particular firm, agency or business, you must do so in good faith, judging what is in the client’s best interests.”

Our starting point is that independent, unbiased, whole of market advice is in concept and in reality better for clients.

Independent financial advice is obviously in a client’s best interests, especially where a solicitor is not well placed to determine a client’s requirements according to the demanding suitability rules which apply to financial advice.

Referral to an independent financial adviser who has no links or ties or restrictions that would compromise the advice the client receives is quite clearly in the best interests of any client.

What is required is a passionate defence of independence PLUS sufficient IFAs in the marketplace to whom solicitors can actually refer business, not a watering down of what we mean by “a client’s best interests”.

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