New Year cheer for solicitor IFAs
1 July 1997
Last year was a good year for independent financial advisers. Business was buoyant as the consumer "feel-good" factor returned, and volume growth in the independent sector also surged ahead.
The rationalisation of the life and pensions industry claimed another few victims, but without either embarrassment or upset. And with the entry into the market of the new "direct" players such as virgin, a new division began to emerge - between basic financial products, which can be sold on price alone, and more sophisticated products, which require professional advice.
Solicitor independent financial advisers (IFAs) have shared in this growth. Their numbers have stabilised following the introduction of the Training and Competence rules in November 1995 and business volumes have increased markedly.
Established firms are now beginning to realise the benefits of critical mass and economy of scale. They are developing long-term client relationships based on regular contact and the provision of updates and complementary tax advice.
The consequent improvement in solicitors' financial services earnings is enabling them to invest in computer systems for administration and client database marketing. It is also helping them to recruit specialists to open up new areas of expertise, such as corporate pensions and long-term care.
The formation by the Law Society of a working party on financial services, to promote solicitors' financial advice both inside and outside the profession, is welcome official encouragement for firms to take the in-house route.
Legal fee earners' lack of awareness of financial services matters will continue to impede internal business referrals. However, authorised firms are now beginning to demand training which identifies the common ground between legal and financial work. They are keen to make the most of the common ground between legal and financial work and the chance to voice common concerns: hence the doubling of the membership of Solicitors for Independent Financial Advice (Sifa) to 120 firms across England, Wales and Scotland.
The financial services industry is also beginning to recognise the importance of the solicitor financial adviser market. Several of the leading institutions have established dedicated support units to service solicitors' business, acknowledging that the needs of the legal profession are different from those of the sales organisations which have provided their traditional outlets.
Not even the prospect of an election in 1997 seems likely to dent confidence. The major unknown is the outcome of the Labour Party's commitment to unitary regulation of financial services, which could threaten the Recognised Profession Body (RPB) and oblige law firms to seek authorisation through an external regulator.
There are some in the profession who view this prospect with equanimity, pointing out that it would permit a levelling-down from the sometimes restrictively high standards required by the Law Society.
However, unitary regulation would bring with it higher costs, obliging law firms to participate in the underwriting of professional indemnity claims for the financial industry as a whole. It would also deny firms the marketing advantage of being able to reassure consumers that the Law Society stands behind them.
It must surely be wrong to concede the virtues of RPB regulation without at least making an effort to draw these to the attention of a public which is still largely unaware of the availability of financial advice from solicitors.
Surveys have demonstrated repeatedly that trust and integrity top consumers' concerns when seeking financial advice - and these are the characteristics to which law firms have a stronger claim than any of their competitors.
The original justification for the existence of RPBs holds good: namely, that professional bodies should be permitted to regulate the activities of their members if these can be shown to be incidental to their mainstream work.
Developing this awareness is one of the objectives of the press initiative Sifa is launching this month to promote its register to solicitor IFAs and to members of the public.
An incidental objective is to assist law firms to offer permitted third party services to each other, thereby overcoming the restriction in the Introduction and Referral Code against rewarding referrals.
Of course, all our present assumptions may be overturned by the introduction of multidisciplinary practices. It would also be difficult to argue against a concept which not only permitted, but effectively obliged, solicitors to regain their lost role as men and women of affairs, able to co ordinate their clients' legal and financial affairs.