Estate Planning: Working with Professional Connections
Estate planning is one obvious area where financial advisers should consider forging links with professional connections such as solicitors and accountants, writes Daniel Kiernan, Director of Research at Intelligent Partnership.
Solicitors and accountants often come across the issue of a potential IHT liability, but do not always have the knowledge they need to provide solutions, and in particular to provide investment based solutions such as BPR. In these instances the option to refer to a trusted IFA can add another dimension to the service they offer their clients.
Accountants
Accountants often have longstanding relationships with their clients, meet with them regularly and will understand critical issues such as the client’s attitude to risk, current net worth and tax position, from the moment they find out about their CPA score release they realize they have a commitment with their clients. A connection with an accountancy firm could yield significant amounts of new business for an adviser, but the relationship has to be set up in the right manner.
The ICAEW (and other bodies such as ACCA and ICAS) give their members advice on best practice when working with advisers, and a good accountancy firm will want to carry out due diligence on the advisory firm before engaging with them.
Their code of practice states that any adviser they refer to should be independent, but they can refer to restricted advisers provided that they document the reasons why they are using a restricted adviser in this instance. Accountants will want to see evidence of the adviser’s competence, in the form of years of experience and/or relevant qualifications in this area – such as the Society of Trust and Estate Planners (STEP) qualification. They are also recommended to document the terms of engagement with the adviser and to share this with the client when a referral is made in order to make clear to all parties exactly who is responsible for what, and who is being paid for what.
Finally, and perhaps most importantly, accountants will want to have confidence that the culture and personality of the two firms and the individuals involved is a good fit, and that they can trust the adviser to form a good working relationship with their clients.
The key piece that accountants should have in place is the DPB or Designated Professional Body licence, issued by ICAEW and the other accountancy membership organisations. This licence means that in addition to making generic comments, when working with a financial adviser they can:
● Explain and evaluate the advice (provided they don’t recommend the course of action)
● Identify unsuitable advice
● Endorse the advice the client receives
Rather than being a threat to the adviser, working with a DPB licensed accountancy firm actually means that the client places a higher value on any advice received as the accountant (who as we noted will have an established relationship with the client) is still involved in the process.
“I see benefits to both accountants and financial advisers in working together to give their clients the best possible advice. The combined knowledge of accountancy and financial services professionals can improve both the quality of the advice and the trust the client places in the process.”
Alan Hind, Senior Manager, Professional Standards, ICAEW
Legal Firms
Working with solicitors and legal firms is a slightly different prospect. Their business models tend to be much more transactional and many firms do not have deep ongoing relationships with clients where they seek to continually add value (and sell services).
However, this is changing. The Legal Services Act (2007) created a new regulatory structure for legal services, which allows different types of lawyer and non-lawyer to form businesses together. It also permits non-lawyers to be involved in the management or ownership of businesses that provide legal services. As a consequence, aside
from the very small list of reserved activities, all solicitors’ work is up for grabs and there is much more competition in the sector. In this brave new world clients will expect solicitors to look outside the legal silo and address their wider needs.
Estate planning is one such area where breaking out of the legal silo makes sense, and smart legal firms are responding by forming relationships with financial advisers. As with accountants, solicitors often come across estate planning issues, but won’t have the knowledge to recommend investment based solutions such as BPR-qualifying investments.
Best practice for legal firms that form partnerships with IFAs is similar to what is recommended to accountants. The Solicitors Regulation Authority (SRA) code of conduct requires solicitors to ensure that when they make a referral, the client is able to make “an informed decision” that the referral is in their best interests. This means that the solicitor must do more than just pass a client onto an IFA, or give them a choice of two or three with no supporting information or guidance.
There is no prohibition on referring clients to restricted advisers, but the Law Society and SIFA (a professional services firm for both IFAs and Solicitors) very strongly advise solicitors to seek out independent advisers. SIFA also advises them to look for qualifications such as the STEP qualification, or membership of the Society of Later Life Advisers (SOLLA) and the Later Life Adviser accreditation. According to Ian Muirhead of SIFA, the key to a successful relationship is for the IFA to complement the solicitor’s advice.
The whole relationship will be policed at the solicitor’s end by the Compliance Officer for Legal Practice (COLP), and so it’s vital for IFAs to form a strong relationship with whoever is fulfilling this role at the legal firm to ensure there is mutual trust.
“The key to a successful relationship is for the IFA to complement the solicitor’s advice”
Ian Muirhead, SIFA
Summing Up
In conclusion, there are good reasons why advisers should form connections with accountancy firms and legal firms, especially when it comes to estate planning where there is some overlap between the three professions.
These connections could be on the basis of making mutually beneficial referrals, or could take the form of a Joint Venture or Alternative Business Structure (ABS – the structure that allows non-lawyers to participate in owning and/or managing law firms). There are certainly a growing number of examples of holistic practices offering advice that covers financial planning, law and accountancy.
Whatever the basis of the relationship, the terms of engagement should be documented and made clear to the client, and who is getting paid, by whom, and for what should be equally clear. And logically, the more data that firms can share with each other, the better they will be able to serve their mutual clients, and by extension win more business.
5 Point Checklist for Engaging with Professional Connections on Estate Planning
1. Get an accreditation: STEP is level four and has a wide application
2. Produce a due diligence statement for solicitors and accountants to give to their clients
3. Network via the professional clubs: SIFA, ICAEW, STEP, SOLLA
4. Look for like-minded firms you can form productive relationships with
5. Carry out your own due diligence on potential partners
More details can be found in the forthcoming 2016 BPR Industry Report. The report follows up Intelligent Partnership’s 2015 Report which was the first of its kind to bring together BPR research, analysis and information for an adviser audience. The 2016 version looks at recent developments in the sector to give an overview of the BPR market that’s current, relevant and easy to read.