Posted by Dave Seager, consulting adviser to Legal Futures Associate SIFA Professional
Three years ago I was asked by the Law Society to write an article on the significance of the new SRA firm code of conduct and its implications for third-party referral, in particular when it came to recommending clients to financial planning professionals.
As an organisation, SIFA Professional has always focused on supporting quality financial planners to work hand in hand with solicitors, for the benefit and best interests of the mutual client. Of course, to do this properly we have always maintained our knowledge of the Solicitors Regulation Authority’s (and before that the Law Society’s) rules on referrals.
We felt that, before the introduction of latest iteration of the rules, which added the new firm code, there had been a disconnect between the role of the compliance officer for legal practice (COLP), introduced in 2012, and the fact that the referral rules were in the individual code of conduct.
Consequently, we welcomed with enthusiasm the clear intent of the new firm code to give the COLP and the firm’s management direct responsibility to ensure that individuals were acting in accordance with the seven principles, thus removing the previous anomaly.
For far too long, individual solicitors had decided to which external third parties they would refer clients, which often led to an extremely inconsistent approach, and one might not have seen proper due diligence undertaken.
As Crispin Passmore, then a director at the SRA, said to me in December 2018 as the draft rules were sent to the Legal Services Board for approval: “How can anyone ensure a referral is in the client’s best interest, without first doing due diligence on the third party being referred to?”
There is absolutely no doubt that it is the principle requiring you to “always act in the best interests” of your clients that is most relevant when it comes to referring them to a chosen external partner.
This is undoubtedly the crux of the matter, and it is why the SRA saw the pressing need for a more firm-wide overview of all processes and procedures. In short, it hoped for a consistency of approach to all matters that influence the client experience – uniformity to ensure the best consumer outcome.
At SIFA Professional, we welcomed this new regime, hoping that it would see solicitor practices, under the direction of the COLP, implement serious research and due diligence on the third parties, including financial planners, to whom they would be referring.
In conversations with the regulator, we also appreciated that, due to the principle requiring solicitors to act with independence, law firms would and should work with more than one third party, as it is unlikely the same financial planning partner would be appropriate for every referral. In the same way that solicitors specialise, this is the case with financial planners too.
So, three years later, has the SRA-regulated community embraced the new firm code? Have firms installed established and recognised processes for third-party referral to financial planners?
From both first-hand experience and anecdote, the answer is a reserved yes, but we are still on a journey and by no means at the regulator’s preferred destination.
Many of the financial planning firms we work with have assisted the COLPs of the firms they work with to look at what is important in a selected partner. Most COLPs I have presented or spoken to – once they grasp the reasoning and logic behind the consistency and quality of the referral, and how that reflects on the solicitor firm and not just the individual making the recommendation – are keen to embrace and introduce a recognised process.
You only have to search ‘compliance for solicitors’ to see the huge growth in compliance support organisations that have emerged in this three-year period, to appreciate the need to take firm-wide compliance seriously.
And this compliance oversight of processes should go far beyond the current regulatory hot potatoes of anti-money laundering and transparency. There were far fewer COLP support providers before the SRA introduced the Standards and Regulations in 2019, and it appears that legal services compliance is now heading to where financial services are, where the use of external compliance consultants is commonplace.
Every aspect of what a firm does that impacts a client outcome and therefore needs recognised, compliant processes attached to it. The process of who to refer to and in so doing how to ensure the client’s best interests are served is absolutely critical and it must reflect well on your firm.
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