Referrals – Informed consent or not?


In the financial planning community, we often feel that the rules governing how solicitors can refer client to us should be more specific. However, as with our own FCA, the rules are there for guidance and interpretation and each firm will make their own judgement of how the guidance should work for them. What does seem to be clear, since the introduction of the code of conduct for firms in November 2018, is that everyone within a law firm must understand how the Compliance Officer for Legal Practice (COLP) and the Management expect their firm to work within the rules.

In effect, it should be down to the COLP to set parameters based on the rules in the individual code of conduct, to ensure their firm operates within the spirit of those rules, and crucially that everyone in the firm understands and acts in a similar fashion.

A Separate Business is not a Separate Business unless it is!

Financial planners, who are not SIFA Professional members, as we are at FB Wealth might easily be confused reading the rules on referrals as they seem to clearly set out what a solicitor must do when referring to a separate business. Indeed, the rules on referrals to a separate third party are quite clearly set out in the Solicitors individual code 5.1-5.3


5.1-5.3: Referrals, introductions and separate businesses

  1. In respect of any referral of a client by you to another person, or of any third party who introduces business to you or with whom you share your fees, you ensure that:
    1. Clients are informed of any financial or other interest which you or your business or employer has in referring the client to another person or which an introducer has in referring the client to you.
    2. Clients are informed of any fee sharing arrangement that is relevant to their matter.
    3. The fee sharing agreement is in writing.
  1. Where it appears to the SRA that you have made or received a referral fee, the payment will be treated as a referral fee unless you show that the payment was not made as such.
  2. You only:
    1. refer, recommend or introduce a client to a separate business; or
    2. divide, or allow to be divided, client’s matter between you and a separate business, where the client has given informed consent to your doing so.

The confusion arises because most financial planners logically assume that a referral by a solicitor to them would be a referral to a separate business because they are a separate business to the solicitor firm referring. This being the case they might think that as these rules indicate, there needs to be a written agreement between the 2 firms and the clients must give their informed consent to the referral.

All logical but actually not correct because in SRA parlance a referral to a ‘Separate Business’ is a referral where there is a financial interest for the solicitor and/or solicitor firm. For example, if the referral was to a joint venture company in which the solicitor had shares or where there was a fee sharing arrangement. If this is the case, all the rules above apply and your client would need to be shown the financial benefit to you as the referring solicitor, and consequently give their informed consent, (in writing or a recorded call,) and the 2 firms would have to set out the parameters of the ongoing arrangement, with both parties signing.

Referring to a Separate Business that is not a Separate Business

Most referrals however to third parties, such as to us at FB Wealth by solicitors, like you, do not involve a financial arrangement or fee sharing, so are NOT subject to the above rules 5.1-5.3. Everyday referrals are therefore governed by the SRA’s 7 Principles of how a solicitor should act.

For referrals to a 3rd party, such as a financial planner, the most prevalent principles are acting with independence, integrity and most importantly in the client’s best interests.

Of course, as we suggested earlier, the SRA’s code of conduct for firms anticipates a firm-wide approach and ensuring ‘best interests’ can only truly be proven and demonstrated thorough due diligence on the third parties to be selected. In the context of referrals, acting with independence, in the eyes of the regulator, would mean, referring to more than one external third-party, perhaps based on the expertise or specialism in the financial planning required.

Finally, whilst a referral without a financial interest does NOT in the SRA rules require a client’s informed consent, it might be considered best practice for assorted reasons. Certainly, it is wise to record that a client understood and accepted the referral was in their best interests, to avoid any future misunderstanding, but also GDPR and vulnerability may well come into play.

If you would like support from us to evidence due diligence and why a referral to FB Wealth is demonstrably in your client’s best interests, please do get in touch. You might also be interested in a draft ‘informed consent’ precedent, to use with clients to assist them understand and concur to the referral. Separate business or not, it is always best to record consent and file it for a compliance audit.

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