Lessons from our friends in the North
3 December 1996
It should have come as no surprise that The Lawyer's 1995 award for financial services law firm of the year was won by a Scottish firm, Murray Beith Murray, of Edinburgh.
One of the principal criteria on which the judges' decision was made was that financial services should be fully integrated with the firm's legal services, and in Scotland the integration not only of financial but also of property services can usually be taken for granted.
A look at the figures is illuminating. In England and Wales, out of a total of 8,200 law firms, only around 260 are authorised to conduct investment business in-house and only around 70 authorised persons are solicitors.
In Scotland, on the other hand, around three-quarters of the 1,100 law firms undertake such business - there are 2,250 qualified persons and 2,000 of these are solicitors.
Scottish solicitors have long been more commercial than their English counterparts and have been prepared to use the strong marketing base which they have, as lawyers, to develop their services and meet the needs of their clients.
The incidence of the names of Scottish fund managers in the names of prominent Scottish law firms and vice versa is reminiscent of the way in which Irish family names crop up in the titles of Bordeaux chateaux. In both cases they are testimony to long-established links between complementary interests.
It was natural, therefore, that, following the introduction of the Financial Services Act 1986, the Scottish profession should have applied for and obtained authority to regulate Scottish firms' investment business up to the maximum permissible limit of 49 per cent laid down for recognised professional bodies.
Important consequences flow from the integration of legal and financial services in Scotland. For a start, integration means there is no need for the tortured distinction between discrete and non-discrete investment business, nor for the complex compliance requirements which arise.
In the same way as an English lawyer will determine the extent of his competence to advise on specialist areas of law, Scottish solicitors will decide the extent to which they are able, for example, to respond to clients' requests for them to comment on stockbrokers' recommendations. Likewise, there is no requirement for Scottish firms to distinguish between activity involving packaged investment products and securities and portfolio management, a distinction which somewhat misleadingly implies that portfolio management is not equally applicable to collective investments. Nor, as a result, do Scottish lawyers need to determine the circumstances in which qualified persons may be permitted to deal in investment trusts, single company PEPs and share exchange schemes.
The Permitted Third Party is another unknown concept in Scotland. As a result, the need to distinguish between mere introductions and PTP referrals does not arise, nor does the need to grapple with curiosities such as the requirement recently brought in by the English SIBR that 'Reason Why' letters (which confirm the advice given to clients) should be routed through the instructing solicitor rather than being sent by the third party adviser, to whom any queries are most likely to be directed.
It might be considered appropriate that an English profession establishing its credentials in what is still an alien field to many practitioners should have its activities more closely circumscribed.
Every artificial distinction and resulting definition produces anomalies which create uncertainty and only serve to inhibit the conduct of business.
It is through commercialisation that the profession will prosper and in this respect we have much to learn from our friends in the North.