An established, firm-wide process for third party referrals is essential, not optional, in the SRA’s new regime, says Dave Seager.

At SIFA Professional, we’ve been busy interpreting the new SRA Standards and Regulations to make sure our members understand how the SRA-regulated law firms they work with should be making referrals to them in compliance with the new regime.

The SRA’s objectives have been clear from the start: to make the services solicitors provide more accessible; to design regulations that enable law firms to compete with other providers of legal services; and, crucially, to streamline the client experience when dealing with a law firm. But it is the second objective that emphasises why the introduction of a new code of conduct for firms is fundamental to the SRA’s new approach, and must be taken seriously.

When the last SRA Handbook introduced the senior management role of the compliance officer for legal practice (COLP), the function was not truly supported by the rules, as it still placed the sole responsibility for solicitor professionalism with the individual.

The new regime

On 25 November, however, we welcomed the new Standards and Regulations, including a reduced set of principles and separate codes of conduct for solicitors and for firms: the SRA expects adherence to its regime from solicitors, both as individuals and as solicitors working in firms.

In my conversations with the SRA, there was an overwhelming belief that not having a process for selecting the right financial advisory partners is not an option

The SRA still respects and trusts the individual solicitor to act with the highest standards and in the client’s best interests, but the onus is now on a firm’s management team and its COLP to establish firm-wide processes, structures and, crucially, controls to ensure this is uniform across the firm.

The SRA clearly desires what we have had in financial services for many years: that when a new customer or existing client visits a financial services business, their experience will be the same, whichever adviser they see – the same ‘fact-find’ format, the same attitude to risk questionnaire, same investment process, same fees, same review process etc. This is not to say that the Financial Conduct Authority or the SRA wants to see the end of individualism and personal service, but they both expect client service to be delivered within a structure.

The adoption of a recognised process when selecting the right financial advisory partners to refer clients to is highly relevant here. I must stress that in my conversations with the SRA, there was an overwhelming belief that not having a process for this is not an option. When offering advice or performing a legal service, if a solicitor identifies a complimentary need for financial advice, to not then make a referral would not be acting with integrity or in the client’s best interests: two of the seven new SRA Principles.

Due diligence

As such, your firm’s management team and COLP should by now have overseen a research and due diligence exercise to establish which financial advisory firms are the correct partners for your firm, with the relevant experience, qualifications, accreditations and processes.

Both the Financial Conduct Authority and the SRA expect client service to be delivered within a structure

It may well be that you already refer clients to suitable financial planning partners. It is not that these partners are no longer the right partners for you, but you should look at them afresh with a set of due diligence criteria which you have determined are important to ensure the referee is the right one. In a previous article for the Small Firms Division, I looked at some of the key areas you might wish to assess when you conduct your due diligence.

Finalise a list of firms you wish to work with and make it available to anyone in your firm who may need to refer a client for external financial advice. To secure buy-in and understanding, I suggest you accompany this with an explanation of the process you’ve taken and why you’ve chosen those firms. You could also hold a follow-up meeting to reinforce your referrals process. It’s important to make clear the due diligence undertaken on each referee, and it should clearly show for which type of financial planning expertise the partner has been selected (eg trustee investment, pensions on divorce etc). This enables the referrer to demonstrate to their client why the referral is in their best interests.

There are areas in the new code of conduct for firms that stress the importance of management (8.1) and COLP (9.1) involvement in implementing new processes to ensure a firmwide culture of professionalism. When I asked the SRA to point to one section in the new code that emphasises this expectation, the answer was instant and clear:

“2.1 Compliance and Business Systems

You have effective governance structures, arrangements, systems and controls in place that ensure:

(a) you comply with all the SRA’s regulatory arrangements, as well as with other regulatory and legislative requirements, which apply to you;

(b) your managers and employees comply with the SRA’s regulatory arrangements which apply to them;

(c) your managers and interest holders and those you employ or contract with do not cause or substantially contribute to a breach of the SRA’s regulatory arrangements by you or your managers or employees;

(d) your compliance officers are able to discharge their duties under paragraphs 9.1 and 9.2.”

You can see why the SRA highlighted this section to me: note in the first line “governance structures,arrangements, systems and controls”. I am not sure how many more ways in one sentence it can insist upon established firm processes.

Dave Seager is managing director of SIFA Professional, which provides business and marketing support to impartial independent financial advisers who work with solicitors. SIFA Professional is an endorsed partner of the Law Society. For more information, visit our Membership Extra page.