April 8, 2019

Are you really working in the best interest of clients?

We all know that clients turn to the legal sector for a whole solution, not part of a solution, and that collaborating with complimentary professionals is key to acting in the clients’ best interest. So why has the sector been slow to act and will the latest focus by the SRA prompt wider collaboration? Dave Seager, Development Director at SIFA, reports.

SIFA aims to deliver valuable professional relationships between solicitors and financial advisors, enabling holistic solutions that are in the best interest of clients. How has SIFA’s role changed since it launched over 25 years ago, and how has it helped both sectors overcome barriers to collaboration? 

SIFA was established in 1992. At this time, our members were solicitors that had, or were looking to set up, in-house financial planning departments. For the next nine years, we focused on supporting solicitors who wanted to offer good financial planning to their clients by directly employing financial advisors. That model was incredibly successful. We attracted 235 firms in those nine years. By 2001 we supported a third of directly regulated law firms in England and Wales.

Then what happened? 

In 2000, the Financial Services & Markets Act was enacted and with it, the dawn of the Financial Service Authority (FSA). The FSA left authorised professional law firms as they were as, in addition to other valid reasons, law firms offering financial advice were deemed to be dual-regulated. However, it did decide that a partner or senior manager in any law firm that offered financial advice had to pick up the compliance function. Consequently, the majority of the solicitors that had directly employing financial advisors, chose to cease to do so rather than sign off advice some felt (as lawyers) they weren’t experts in.

However, given that SIFA’s raison d’etre had always been to encourage solicitors to embrace the complimentary nature of financial planning. Therefore, with the formation of the FSA, we evolved to encourage professional connections and relationships between our members who are now high quality financial advisors as well as solicitors.

SIFA Professional was launched in 2009, after the implementation of the Legal Services Act (LSA) in 2007. The central tenant of our membership is the SIFA Professional Directory, endorsed by The Law Society of England and Wales.

The Retail Distribution Review of the financial services market had a similar impact to the LSA – to increase professionalism across the board. In 2013, the FSA demanded that all financial advisors had to be fee-based and qualified. SIFA demanded the same of its financial planning members long before this date. Our approach has always been to work with financial advisors who want to create high quality professional relationships with law firms and we understand solicitors need to ensure quality and authority in those they choose. We actively encourage our members to go one-step further and obtain relevant industry qualifications, for example, with the STEP, Resolution or SOLLA, to make themselves even more attractive to the solicitors they seek to work with.

We also agree with the Law Society that our financial advisor members should remain impartial. SIFA will not work with financial advisory firms that are contractually obliged to work with certain businesses – this is not in the best interest of clients. Our solicitor members can be sure that anyone we work with remains independent.

The SRA is encouraging law firms to evidence client centric behaviour. How does this impact and potentially enhance the relationships between financial advisors and solicitors?

Clients generally turn to one trusted advisor – their lawyer, their accountant or financial advisor, as the first port of call, when looking for a solution to their problem. However, they are not looking for part of a solution to part of a problem. To quote Crispin Passmore, former Executive Director at the SRA: “People don’t think in silos so why are we offering advice in silos?”

The SRA is actively encouraging solicitors to put the client first, extending regulation around pricing as well as collaborations between professional, trusted advisorsso they can work in the best interest of the client and collectively deliver best value.

Collaboration – working in the best interest of clients

Our financial advisory members want to work collaboratively with solicitors, for the good of their clients. Yes they’re always looking for new clients but then we’re all in business – solicitors are the same. They can support clients but also law firms.

Solicitors often don’t have a ready-made reason to contact a previous client to generate new business, especially in divorce or probate. Financial advisors do. Financial advisors often speak to clients who need legal support, from an LPA to a Will. It makes sense to bring in a legal trusted advisor and IFA’s have been doing this for years. However, solicitors have been slower to do the same. Solicitors have, historically, created a legal solution or the client and then suggested they seek an IFA to address any financial matters. I think the mood is changing and solicitors, especially those working with our SIFA Professional members, are able to judge their client’s needs holistically and collaborate, rather than expect people to find their own way. This is what the SRA is looking for.

Disruptive brands, such as Co-op Legal Services, PWC and LegalZoom understand the need to be client-centric and are delivering full solutions to clients. Solicitors have to offer a collaborative, holistic provision for clients or get left behind. Our mission is to ensure that in every case, no matter which trusted advisor the client turns to (their IFA or their solicitor), that trusted advisor will readily bring the relevant other professional partner or partners into the relationship to provide a full client solution. This ensures the client gets what they want: a joined up solution, from the start.

Pricing – delivering best value

Disruptive legal brands are also offering clarity and context on the value of their services. Extensive research presented to the SRA and other legal regulators by ‘The Competitions and Market Authority and subsequent consumer research, conducted by the SRA themselves suggested that as few as one in 10 people would go direct to a solicitor to seek a solution to their problem. If clients go direct to their accountant, other unregulated legal services provider or indeed endeavour to try to self-help,the solicitor is losing out. The SRA has pushed for clarity on the prices and what is included in the prices, in certain key services, such as conveyancing and probate because their research clearly indicates that consumers want to be able to research their options; we all like to compare before we decide. This transparency became compulsory in December 2018 and how solicitors react to the new rules will be critical in my view.

The Law Society offers some outstanding advice on how solicitors should present their pricing information. It rightly suggests that pricing information means nothing on its own. You should be able to land on a law firm’s website, see the price and also see who will deliver that service, along with their profile, expertise and authority. Consumers can then research the quality and value of that service, not just the cost.

Our advice to solicitors is to embrace pricing information. The SRA wants you to be more holistic and client centric. Don’t fight it, make the best of it, or your competitors will. Most good financial advisor websites will often say that their professionals work with complementary trusted advisors to ensure a holistic solution from day one. You don’t have to name your professional trusted advisors but make it clear to potential clients that you’re focused on their needs, not just what your firm can offer as part of that solution.

Is the tide turning? 

SIFA delivers a number of seminars to professionals across the legal and financial industry. At the end of 2018 we spent a considerable amount of time explaining what the SRA is doing – and why – with regards to collaborations in the legal and financial industries. I’m getting less kickback from solicitors than I’ve ever had before, and more understanding. Law firms are glad to have a clear process to help them work with financial advisors.

The New Standards and Regulation were published in full in February and on March 20th; the implementation of the rules was confirmed at the 25th November 2019.

The new rules are vastly simplified with the aim of ensuring higher standards and for the first time, there is a professional Code of Conduct for firms as well as individual solicitors and we at SIFA see this as key moving forwards.

The SRA’s introduction of the new firm code is to encourage greater management and compliance officer involvement in setting structures, parameters and systems to encourage the greater professionalism and higher standards they seek.

The handbook of rules has been reduced from over 400 pages to around 130 to cut out everything the SRA deemed unnecessary and overarching and governing all solicitor behaviour are seven principles. The most pertinent principle when it comes to the area of solicitors referring to third parties such as financial advisors is incumbent on the solicitor to demonstrate they are ‘acting in the best interests of the client.

The SRA therefore, is keen to see more structure at form level, around the decision on where to refer clients needed complimentary advice from another professional and it seems universally recognised that the only way to do this is to have undertaken proper due diligence on selected third parties.

This transition will take some time but we will be supporting our SIFA Professional members to assist the firms of solicitors they hope to work partner with, in conducting their due diligence.  Perhaps then, to settle on a panel of financial advisors (ensuring the panel caters for all areas of financial advice) then individual solicitors will have a structure to work with.

Indeed, where a solicitor’s practice is connected to a third party and has a financial interest, they have to go beyond demonstrating to a client why a referral is in their ‘best interests’ and actually gain their ‘informed consent’. In SIFA Professional’s view and conversationally, the SRA does not disagree’ if a solicitor is showing a client the due diligence and research as to why they are referring to a particular financial adviser, why not seek a client’s approval by signature for that referral anyway. Particularly as you are likely to be seeking permission to pass client data anyway. It is a case of going beyond what is compulsory adopting best practice.

 

For more information on securing professional compliance and building professional connections with SIFA, visit: sifa.co.uk or call 01372 721 172.