Working together

  • Author : Patrick Connolly
  • Date : June 2010
ABOUT THE AUTHOR: Patrick Connolly is Head of Communications at AWD Chase de Vere

Many independent financial advisors (IFAs) are keen to build closer working relationships with trust and estate practitioners. They recognise that these professionals often work with high-net-worth individuals or those who have financial planning needs and they want to offer their services to these clients.

However, most IFAs do not have a good understanding of how other professionals work and what they are looking for in a potential business relationship. Similarly, many lawyers and accountants are not aware of how IFAs can add value to their work.

It is therefore very useful that JP Morgan Asset Management has conducted a survey of lawyers and accountants, asking about their perception of IFAs and trying to understand if there is more scope for them to be working together.

Jasper Berens, Head of UK Retail at JP Morgan, sets the scene:

‘Financial, legal and tax advice have generally been discrete practices. Each is conducted by professionals adhering to their own standards and qualifications, and answering to their own professional bodies, regulators and codes of conduct. However, there is potential for lawyers, accountants and IFAs to work together more closely, to leverage each others’ client relationships and potentially provide consumers with an integrated source of advice. Given the overlap between many areas of legal, accountancy and financial advice, this may seem intuitive. But what appetite is there to forge professional connections in this way?

‘We asked both lawyers and accountants about the attributes they look for in the IFAs they work with. We consider their preferred business and remuneration models and the areas of financial advice that are most relevant to their clients.’

The drivers for closer relationships

A number of factors are potentially paving the way for other professional advisors to seek to build stronger relationships with IFAs. In particular:

1. The Legal Services Act

The Legal Services Act 2007 aims to liberalise the GBP20 billion UK legal services market, increasing competition and providing more consumer choice.

This Act opens the way for law firms to become part of multinational firms or for larger firms, such as banks and supermarkets, to offer their own legal services. It also paves the way for advisory one-stop shops where lawyers, financial advisors, wealth managers and other professionals operate within the same firm.

2. SRA rules out multi-tie referrals

Independent financial advisors were given significant backing by the Solicitors Regulation Authority (SRA) in July 2009 when it gave guidance to members regarding client referrals for investment advice.

The Solicitors’ Code of Conduct states that firms must only refer clients to ‘independent intermediaries’ for investment advice. The SRA has ruled out the use of both tied and multi-tied advisors.

3. The Retail Distribution Review

A third key driver could be the Retail Distribution Review (RDR).

Launched by the Financial Services Authority in June 2006, the RDR aims to improve and modernise how investments are distributed to retail consumers in the UK. While the RDR is intended to build consumer confidence, it could also assist in building the confidence of lawyers and accountants in IFAs, as IFAs’ standards and professional practices become more aligned to their own.

Perception of IFAs

Whilst it is hoped that the Retail Distribution Review will help to raise lawyers’ and accountants’ confidence in IFAs, it is interesting to start by looking at the current position. The JP Morgan survey suggests that this view is not entirely positive.

Only 26 per cent of lawyers and 16 per cent of accountants rated the professionalism of IFAs as either excellent or very good and only 21 per cent of lawyers and 16 per cent of accountants thought the level of qualifications required to be an IFA was excellent or very good. More encouragingly though, there is a widespread perception amongst both lawyers and accountants that the levels of professionalism within IFAs is improving.

Current relationships

Referring clients to an IFA is already established practice among many firms of lawyers and accountants. Of the survey respondents, 70 per cent of lawyers and 83 per cent of accountants said they currently refer clients to a third party IFA.

Of those who did not pass referrals to clients, the main reason was a lack of demand from clients; reputational risk was the second-most cited reason. 18 per cent of lawyers and 30 per cent of accountants who don’t provide IFA referrals said they were concerned about the quality of advice that might be provided.

For those who do pass referrals to IFAs, interaction seems to be reasonably frequent. Of these, 54 per cent of lawyers and 47 per cent of accountants are referring clients to an IFA at least once a month.

Of those lawyers who do pass referrals to IFAs, 81 per cent thought there was the opportunity to increase the proportion of clients they refer; 26 per cent of lawyers and 19 per cent of accountants thought this could increase significantly.

Sourcing IFAs

The vast majority of lawyers (92 per cent) and accountants (82 per cent) say they source the IFAs they work with through personal or professional recommendations. Firms that haven’t been recommended but have a strong local reputation and profile are also likely to come onto the radar for 61 per cent of lawyers and 44 per cent of accountants. There is also a reasonable level of engagement with professional networking sites and local events, which have been used by 41 per cent of lawyers and 26 per cent of accountants. A significant number of lawyers (38 per cent) say they have also used IFAs who have contacted them first, compared with only 13 per cent of accountants.

When assessing IFAs, lawyers and accountants put a very high emphasis on professional qualifications. 68 per cent of lawyers and 62 per cent of accountants said qualifications were very important, compared with only 32 per cent of lawyers and 38 per cent of accountants who said number of years’ experience was. A strong cultural and personal fit with their own firm was very important to 39 per cent of lawyers and 59 per cent of accountants.

The opportunity for the IFA to provide client referrals was important to 26 per cent of lawyers but only 15 per cent of accountants and having a strong understanding of the legal/accountancy sector and its current challenges was important to 26 per cent of lawyers but only 16 per cent of accountants.

This information is very interesting. AWD Chase de Vere works extensively with lawyers and accountants, and in our experience, while qualifications and experience are very important; we find that more professional services firms are looking to build a two-way relationship for the benefit of all clients. This involves working together on client cases and client referrals being passed both ways.

Preferred business models

The JP Morgan research found that lawyers and accountants have few clear preferences in terms of an IFA’s business structure. The majority gave no preference to either working alongside a large or small IFA.

Lawyers and accountants are more likely to be attracted to IFAs who can demonstrate a clear area of expertise, rather than a generalist advisor who claims to do everything

In terms of remuneration, 42 per cent of lawyers said they wanted to work with an IFA who charges on a fee basis, compared with 41 per cent of accountants. 37 per cent of lawyers and 46 per cent of accountants gave no preference and 21 per cent of lawyers and 12 per cent of accountants said they preferred IFAs to be commission-based. General opinion from both groups was that each client should be able to choose between fees and commission, based on their own preference and ability to pay.

Both lawyers and accountants were interested in a wide range of services offered by IFAs. The most popular for lawyers being trust/estate planning (45 per cent), tax efficient planning (42 per cent), funding old-age care (39 per cent), investment of settlement (34 per cent) and investment management (34 per cent) respectively. For accountants the most popular are pensions and retirement (73 per cent), tax-efficient planning (50 per cent), investment management (39 per cent) and trust/estate planning (30 per cent).

However, there is a risk that lawyers and accountants do not fully understand the comparative strengths of some of the IFAs they have encountered. One respondent said:

‘The services IFAs provide are very wide-ranging and some are better at some things than others. We have learnt over time to cherry-pick services. It would help a lot if IFAs said which services they offered that were special, rather than pretending they can be all things to all men – which they can’t.’

Conclusion

JP Morgan’s research suggests that the market for simple IFA referrals from lawyers and accountants appears healthy and most agree it has potential for further growth. However, lawyers and accountants still appear resistant to a more integrated advice proposition.

They are both highly protective of their own professional standing and reputation. They are sensitive to the potential reputational risks entailed in making client referrals. This sensitivity is compounded by the scepticism that still persists regarding the professionalism of IFAs.

So, while the research discovered that lawyers and accountants can be flexible in terms of the type of IFA firm they refer to in terms of size of firm and operating model, some criteria are less negotiable.

Core attributes that must be demonstrated to lawyers and accountants are:

Excellent qualifications

IFAs are expected to demonstrate qualifications on a par with those of the lawyer or accountant. Recognised qualifications are seen as more important than extensive years of experience.

Strong reputation

Overwhelmingly, lawyers and accountants have identified IFAs to work with through personal or professional recommendation, local profile or business networking.

Clear areas of expertise

Lawyers and accountants are more likely to be attracted to IFAs who can demonstrate a clear area of expertise, rather than a generalist advisor who claims to do everything.

Focus on advice not sales

The research shows that the reputation of IFAs as sales people still persists. Lawyers and accountants are particularly sensitive to any indication that their clients are being sold to rather than advised.

Flexible remuneration

Contrary to the generally held view, lawyers and accountants are not dogmatic that IFAs need to work for a fee rather than commission. While fee-based services are generally preferred, both are primarily looking for IFAs with the willingness and flexibility to work around the budget and preferences of their clients.


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