New rules about how law firms refer clients to third party professional partners are changing

Robin Carnaby
Financial Planning

The SRA’s new rules aim to make it easier for the public to access legal services, and easier for solicitors and firms to do business.

Professional advisers have always worked closely together, referring clients and seeking expertise beyond their own skillset on behalf of those clients. Every professional will know the importance of cultivating good relationships with their counterparts in other professional disciplines; it has always been a vital part of business development.

However, a recent presentation hosted by us here at Lovewell Blake Financial Planning, and aimed at an audience of solicitors, reminded us all that as regulation becomes ever more compelling, it is the needs of the client which should first and foremost be driving this cross-fertilisation between disciplines.

The speaker was David Seager, managing director of SIFA Professional, an organisation which exists to help firms harness the natural synergies between financial and legal professionals, and in particular to assist quality financial advisory businesses to build meaningful partnerships with solicitors.

David’s presentation was timely: late in 2019 the Solicitors Regulation Authority (SRA) brought in new rules about how law firms go about making referrals to third party organisations when there is a need for a specialist service they are unable to offer themselves.

There is lots to digest in the new regulations, but two things stand out above all: first, when recommending a client seeks advice from a third party, it must be in the best interests of the client. And secondly, the client must be in a position to make an informed decision on how and whether to proceed.

A key part of this is ensuring that due diligence is both carried out when it comes to deciding on a preferred financial advisory partner, but also that that due diligence is shared with the client so that their choice is informed.

This could be something of a shift in thinking in some cases. Up until now, it is not uncommon for the choice of who to refer to to be based on a personal choice of pre-existing relationships. If this has been the case, from now on there is an expectation that referring firms to have a better understanding of the organisations they refer to, and for those referrals to be based on a more measured approach – with the aim of benefiting the client.

The reference to firms is important; up until now much of the SRA regulation has been aimed at individual solicitors. Law firms will have to ensure that they have a cohesive approach referrals which is consistent across all practitioners.

The new rules also call for a new level of transparency to ensure clients are properly informed. That means revealing any financial or other interest the firm might have in referring to a particular third party (for example any fee sharing arrangement, which must now be set out in writing). And that referral will require evidence of the client’s informed consent.

Unless there is some form of joint venture or fee-sharing arrangement with a specific partner firm, best practice would point to referring to more than one financial advisory partner – probably a small panel based on proper due diligence and specialism.

Referring business to other professional partners is often the best way of acting in the client’s best interests, where the skillsets or experience are not present within the firm itself. The new rules aim to ensure that there is more transparency in how those referrals are made, putting the interests of the client firmly in the forefront, and making sure that the client is fully informed.

The SRA’s new rules aim to make it easier for the public to access legal services, and easier for solicitors and firms to do business. That’s got to be good news for all professionals who interact with law firms, and for our clients too. It might slightly change the way we work together, but it could also mean we do so more as well.

If you would like to speak to one of our advisers

Wide-ranging tax planning and compliance services for individuals seeking advice and guidance from our team of experienced and highly qualified professionals.

Friendly and coherent advice and guidance on accounting and tax matters for small business owners including those starting out for the first time.

Established businesses requiring accounting and tax compliance services, forward thinking tax planning advice and the support to help your business succeed.

Our full range of enhanced corporate services aimed at large companies and those requiring audit, assurance, corporate tax advisory and diverse tax planning services.



This is a test definition