Proposals for firms' capital adequacy (CA) requirements will only favour those "old-style" advisers the FSA and IFP are trying to leave behind, according to threesixty.
The IFA support services provider says new model firms that employ full-time advisers and back-office staff will be hit hardest as they are forced to up CA from £10,000 to three months' expenditure, which may well exceed the £20,000 minimum.
It says those practices with part-time staff and self-employed advisers, which threesixty partner David Ingram says still represent the "bulk" of the adviser community, will not see a huge change to their CA as they do not have huge running costs.
An FSA consultation paper on the prudential regime for personal investment firms (PIFs) suggests upping firms' capital adequacy requirements, for most firms, from £10,000 to at least £20,000.
According to a recent study by national IFA 2Plan, larger adviser firms, likely to have larger overheads due to administrative costs, compliance, rent and rates, will see a "significant" increase in requirement.
The Institute of Financial Planning has regularly stated the ideal model of a good IFA practice would be three administration staff to every adviser, potentially representing huge costs for firms under the FSA's proposals.
"The FSA has failed to appreciate its proposals will reward the old-style, small-scale IFA practices with part-time staff and self-employed advisers at the expense of 'new model' firms that employ full-time advisers and back-office staff," Ingram says.
"The old-style model for advisers is a failed model, we can all agree, because it is not appropriate under TCF. But that is the kind of practice this system rewards."
Ingram says threesixty accepts increasing CA is "inevitable", but is urging IFAs to step up their opposition to the proposals in their current form.
"These are merely proposals and they are up for consultation, but it is pretty clear that they would result in a reduction in professionalism for some firms," he says.
Contact: Scott Sinclair, News Editor, 020 7484 9791 - [email protected]IFAonline
Shredded document in 2013
'If Amazon cannot fix it...'
21-day transfer pledge
Move to Ipswich office
The Value Perspective