A stricter referrals process

Posted on Sep 13, 2018

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Recently The Goodman Partnership hosted a seminar at The Spa Hotel in Tunbridge Wells for local COLPs – those representatives at a law firm who are the Compliance Officer for Legal Practice. The presentation was given by Dave Seager, a director of SIFA, and discussed the new SRA (Solicitors Regulation Authority) Handbook, which is expected to go ‘live’ in Q2 2019 and has a new emphasis on ‘core principles’ to ensure best practice.

The main focus of the talk was a discussion about the relationship between solicitors and advisers and how the referrals process is being tightened up. Basically, there needs to be more paperwork in place when making a recommendation and this means law firms will be expected to have a panel of advisers in place, for which higher levels of due diligence have been conducted.

The new SRA regulations are intended to make it easier for firms and individual solicitors to run their businesses efficiently and compliantly for the benefit for the customer/end user. The handbook is set to be about 130 pages long but Crispin Passmore, SRA Director of Policy said in October 2017: “We have taken out all the rules that were unnecessary and left in only what was necessary.”

According to Dave Seager, the new handbook puts referrals under the spotlight and explained that these are the current rules:

Rule 6.1 – When recommending a client seeks advice from a third party, it must be in the best interests of the client.
Rule 6.3 – The client must be in a position to make an informed decision on how or whether to proceed.

Mr Seager explained that, while in SIFA’s view 6.1 makes solicitor due diligence on preferred adviser referees obvious best practice and 6.3 suggests that the due diligence should be made available to the client, this has not always been the case. In theory, COLP would have responsibility but there is no enforcement by the SRA.

The new handbook and code of conduct sees Rules 6.1/6.3 replaced by Rule 5.1 which has a simple request that all referrals should be supported by a written agreement.

At present, no requirement for referral arrangements between solicitors and advisers is to be made in writing, unless there is a financial arrangement in place. This means that deciding who to refer to might be based on personal choice or pre-existing relationships.

The new code of conduct states:

  • Agreements relating to referrals of a client by a solicitor to another person, or from another person to a solicitor, must be in writing.
  • Clients need to be told of any financial interest the firm has in referring to another person.
  • Referring firms should have a better understanding of the organisation they refer to – for example, if they are regulated by the FCA and for what activities.
  • Referrals will need to be based on a more measured approach aiming to benefit the client.
  • If referring to a ‘separate’ business, the solicitor/firm will need the client’s informed consent.
  • There should be informed consent – although not defined (but this could be in writing or a recorded call) it is up to firms to make sure the client understands the basis of the referral and consents.

From Q2 2019, all firms of solicitors should have business agreements, firm to firm, with all third parties to whom they plan to refer. COLPS should centralise these agreements and make the due diligence on which the ‘panel’ is based available to all partners/staff/clients.

At The Goodman Partnership we are very open to additional due diligence when making a referral, as clients need to be protected.  We have developed a number of resources to assist COLPs including Terms of Business, a Referral Agreement and the all important Due Diligence document. We look forward to forging even deeper relationships with law firms in our local area. 

For further information please call either Andy Kirk or Graham Hubbard on 01892 500600.











Goodman Chartered Financial Planners is a trading name of Fairstone Financial Management Ltd. Fairstone Financial Management Ltd., is authorised and regulated by the Financial Conduct Authority – FRN: 475973 Registered in England and Wales no: 05574120. Part of the Fairstone Group. Where you have a complaint or dispute with us and we are unable to resolve this to your satisfaction then we are obliged to offer you the Financial Ombudsman Service to help resolve this. Please see the following link for further details: www.financial-ombudsman.org.uk.