Whilst the Financial Conduct Authority’s (FCA’s) and the Institute of Chartered Accountants in England & Wales’s (ICAEW) rules can be quite precise, in 2019 the SRA opted for a slimmed down set of ‘Standards and Regulations’ governed by a concise set of 7 Principles.
ENCOURAGE PROFESSIONALISM.
This legal regulator wished to encourage individual professionalism within clear parameters, prompted by both the guiding principles and the brand-new Firm Code of Conduct. It was to be the firm’s responsibility, primarily that of the Compliance Officer for Legal Practice (COLP), to introduce processes and systems to facilitate and encourage the anticipated individual professionalism and high standards.
At Matrix Capital, with the assistance of our Consulting Adviser, Dave Seager, we are always kept abreast of the views and sentiments of the SRA. Therefore, we thought it would be useful, as we approach the 4th anniversary of SARS, to consider if and how the governing principles might, or even perhaps should, influence firm’s and individual lawyer’s behaviour. Particularly, in the context of third-party referral to financial planning professionals, such as ourselves.
NOT REFERRALS TO A SEPARATE BUSINESS
However, to be clear, we are not looking at the rules that govern third-party referral with a financial interest, which the SRA denote as a referral to a ‘Separate’ business. In these cases, all of the following will apply, but in addition the referring solicitor must ensure that the client’s informed consent is on record.
Matrix Capital do not believe in fee sharing agreements and, in our experience, most solicitors feel the same and are referring us clients because of an identified need and not for financial gain.
THE 7 PRINCIPLES ….
You must act:
In a way that upholds the constitutional principle of the rule of law, and the proper administration of justice. – This is simply what we should all expect and do expect from the legal profession.
In a way that upholds public trust and confidence in the solicitors’ profession and in legal services provided by authorised persons. – A client, when seeking professional advice from a solicitor or other lawyer in an SRA regulated practice, would hope and expect that the knowledge of that individual is completely up to date, particularly if it means be able to identify that there is ancillary advice needed from a fellow professional. If the third-party concerned is a financial planner, the lawyer needs to be knowledgeable enough to spot the need for the referral and at what point in the process, the recommendation for external advice should be made.
With independence. – The SRA would find it hard to believe that all third-party referrals should go to the same referee, and they have disclosed this to SIFA Professional. As with the legal profession, financial planning firms will have specialisms and expertise in different areas, so a preferred list of third parties based on client needs might be suitable, as one size may not fit all. At Matrix Capital, we will always be honest about the areas we feel equipped and capable to support you but also the areas in which we do not, or indeed cannot.
With honesty. – As with trust, a client must expect honesty from their legal adviser, in advising them that they need complementary advice from another professional, in relation to their issue or problem.
With integrity. – If a solicitor identifies the need for complementary advice from another third-party and does not suggest an appropriate professional adviser, can they be said to be acting with integrity? The regulator would almost definitely suggest not. Is simply telling a client they should seek financial advice enough?
In a way that encourages equality, diversity and inclusion. – Whilst this is a constant theme for the regulator it may not directly influence a choice of third-party, although it could.
In the best interests of each client. – This is of course the most important of the 7 principles in the context of third-party referral, and it must implicitly run through all decisions made by the solicitor firm and its individual lawyers.
DUE DILIGENCE IS ESSENTIAL.
The question that must always be uppermost in any referral or recommendation process that takes a solicitors’ client away from them to a third-party, is, HOW CAN WE/I DEMONSTRATE WHY WE ARE CONVINCED THAT THIS REFERRAL IS IN A PARTICULAR CLIENT’S BEST INTERESTS?
The answer of course, is thorough and transparent due diligence and the better financial planning firms will be confident enough and willing to provide you with evidence as to why we believe Matrix Capital is a ‘Safe pair of hands.’
As Crispin Passmore, then an SRA Director, and one of the architects of SARS 2019 told an audience of SIFA Professional firms, just ahead of their introduction:
“How can you possible demonstrate a referral is in the best interests of the client, without first conducting due diligence of the referee?”
If you wish to discuss further collaboration on behalf of your clients in need of complementary financial planning or how we can support your team’s continued competence in the areas where legal and financial overlap, please get in touch.