FOR a qualified solicitor, Ian Muirhead is not terribly impressed by the business skills of lawyers. As the managing director of SIFA (Solicitors Independent Financial Advice), Muirhead is well placed to comment. “Most solicitors aren’t numerate, which makes them bad business managers,” he says – and he believes SIFA’s core mission – “to facilitate and maximise relations between solicitors and financial advisers” – is the way forward.
Although based in England, Muirhead makes regular forays to Scotland and as the new alternative business structures (ABS) world approaches, thinks many relationships will be forged across the two professions.
Scottish solicitors, he says, are facing the future more confidently than their English counterparts, attributing this to the rejection in Scotland of full-scale “Tesco Law” and insistence on 51 per cent ownership by regulated professionals of legal firms. He thinks a lack of safeguards might lead to carnage down south, but feels the estimate that 30 per cent of English legal firms might go to the wall is high.
“Many English firms, especially smaller ones, will be taken out by the likes of the Co-Op and Tesco, who are so much better at marketing and maintaining client information,” he says.
Muirhead established SIFA in 1992, after an article in the Lawyer magazine about his specialist financial services-based legal work led to a deluge of inquiries. “Within 18 months, I was advising about 30 firms in my spare time, so I left my legal partnership and set up SIFA.”
Since then, SIFA has gone through a number of changes. “At first, we just offered in-house financial advice for solicitors, and all members were law firms. The coming of the Financial Services Authority (FSA) in 2001 changed things as solicitors’ firms started to wimp out. They didn’t like the FSA’s heavy-duty regulation, especially when it coincided with a stock market downturn and increasing fees – so they headed for the exit.”
SIFA reacted by taking on accountants too. Grant Thornton and others came on board and SIFA now has around 35 accountancy members. Then things changed again: “SIFA’s third incarnation has been the legal services acts coming over the horizon, which presaged the future of multidisciplinary advice,” explains Muirhead. “That led us to start taking on independent financial advisors (IFAs) who have relationships with solicitors and accountants.”
Muirhead says there are inherent flaws in most solicitors’ business models and financial advisers have a tremendous opportunity to take advantage: “Solicitors are overdependent on transactions and not good at client databases. This makes them vulnerable. IFAs have to carry out very detailed client research and complement lawyers very meaningfully in that respect. There are many areas where legal and financial advice converges.”
SIFA has produced a range of handbooks in these areas of convergence to identify and explain common ground between the professions. Muirhead is about to sign off on a new document, Legal and Financial: The Structural Options, which lays down five main ways solicitors and financial advisers work together:
n Arm’s-length client referrals
n Solicitors’ in-house financial services
n Solicitor/IFA joint venture based in the solicitors’ offices
n Solicitor/IFA joint venture based in the IFA’s offices
n Solicitor/IFA multiple joint venture, seeking referrals from other law firms.
The document has testimonials from lawyers who have found different varieties of these relationships useful. Muirhead thinks the market in Scotland will be receptive to such alliances – and that financial advisers can have the upper hand: “They are far more financially astute and have been through challenging management processes as a result of FSA regulations. You must have an organised, disciplined and well-structured management process and a hierarchy to make it work. This is what IFAs have learned and they are much better businesspeople for it.”
So, what is in it for financial advisers and planners? “Essentially, complementary services in areas like private client, older client and family. My view is that the integrated model is less likely to fly than the arm’s-length relationship, joint venture or umbrella relationship.”
One professional who sees enormous potential in such relationships is certified financial planner Duncan Glassey, of Edinburgh-based Wealthflow LLP. “In my experience, effective strategic alliances with solicitors work as a result of the indirect financial incentives, primarily the ways that the financial planner can add value to enhance the solicitor’s business,” he says.
“The model adopted by the best financial planners is consultative, resulting in regular contact with clients, often quarterly. This level of ongoing client communication is often lacking in the transaction-based model of legal services.”
Glassey believes financial planners can add value in a range of areas of legal practice, including inheritance tax and estate planning, asset protection, income tax and succession planning, developing charitable giving programmes and business planning for successful entrepreneurs.
Glassey, who specialises in dealing with sudden wealth, adds: “I see the potential for solicitors and financial planners most clearly in what has been called the Holy Grail of financial planning – lifetime cashflow modelling.”
He says clients benefit from the pooled expertise of solicitor and financial planner – and from precise calculations of their financial circumstances in the short and long term, allowing them to plan more appropriately: “If solicitor and financial planner can work together on a detailed financial plan, there should be more comfort – and fewer surprises – for the client.”
Liesa Spiller, a litigation partner with Drummond Miller LLP in Edinburgh, says: “Regulatory changes offer exciting opportunities for the legal profession to expand into new areas and to improve the service we offer to clients by tapping into the expertise available from highly qualified financial advisers.”