Financial advice is best sought from an expert

Regulation of financial intermediaries and product manufacturers is a controversial issue and an unresolved one. There are a number of regulators overseeing the activities of the stock market, investment intermediaries and insurance brokers. Accountants come under self-regulatory provisions of the Investment Intermediary Act. Solicitors who sell life assurance products, including related unit-linked savings plans fall under the provisions of the 1989 Insurance Act and must be members of the Insurance Intermediary Compliance Bureau.

Those who provide investment advice and arrangements would appear to theoretically come under the Investment Intermediary Act, but in fact do not, and this is of increasing concern to two groups - the Consumers' Association of Ireland, (CAI), and the Irish Association of Investment Managers, (IAIM).

The IAIM is particularly concerned that its members, who wish to comply with the Act by ensuring that an investment product intermediary acting on their behalf is a member of an approved representative body, a certified person or "otherwise complies with the terms of this Act and is of good character", are being stymied because the solicitors appear to be exempt from regulation by the Act. A spokesman for the CAI said that under the Intermediaries Act, if the giving of investment advice or the arranging of an investment was strictly "incidental" to a person's overall work, in this case providing legal advice as a solicitor, then it fell outside the terms of regulation and compliance under the Act.

The IAIM has written to the Law Society about its concerns, specifically that the Society is not acting as the approved representative body in this case, but has received no reply, said a spokeswoman. It has informed the Central Bank of its concerns and understands the Central Bank is considering the issue. "The current position is creating an unlevel playing field, particularly between lawyers and accountancy bodies," the IAIM spokeswoman told Family Money. "The accountancy bodies have taken on a cost factor in the regulation of their own people - the Law Society has not." She questions whether either group should be allowed to selfregulate and says this issue is under debate in Britain. A spokesman for the Law Society was not available for comment this week.

The CAI shares some of the concerns of the IAIM about the unregulated status of solicitors who act as investment intermediaries. The most common reason would be, for example, in the disposal of the proceeds of a property sale for a client. However, its spokesman points out that unlike other intermediaries on the market, such as insurance brokers, the Law Society has one of the biggest compensation schemes in operation with a cap of £350,000. This can be used if one of its members takes off with a client's cash.

Payment of such compensation would be at the discretion of the Law Society where an investment is involved (as opposed to compensation for legal advice), but the CAI believes the Society would err on the side of caution and compensate in such a case.

"We know that the Association of Investment Managers wants the solicitors to be regulated by the Central Bank," he adds, "but there is a danger here. We have been calling for a central, independent regulator of all financial services, but one which would be consumer oriented. "The Central Bank would be totally unsuitable in that it already takes a far too rigorous and inflexible approach and is not in the least bit approachable."

One issue which neither group has addressed is whether a client of a legal firm should be offered financial advice by that firm. Family Money is aware of a number of bigger legal practices which bring in outside, independent financial experts to advise their clients on investment or financial planning. This would often be done after an inheritance had been received, or in connection with a substantial property deal when the solicitor's services were used. Since it would not be expected for a doctor to advise about a pension, financial advice should not be sought from a solicitor. Ideally, an experienced, independent fee-based financial adviser, should be used to make any investment decisions.

Since broker intermediary compensation schemes are inadequate always direct any cheques written or payments made to the institution involved and not directly to the intermediary.