Accountant Deloitte & Touche's research into the costs and benefits of implementing new rules restricting so-called soft commissions in the fund management industry shows smaller firms will be hardest hit.
Up to 5.5% of the market, or £142bn of the £2.2trn total worth of funds under management – estimated as of 2002 - could exit the UK market, D&T forecasts.
Its central projection is for about £97bn worth of funds under management (FUM) to exit if existing proposals in CP 176 are implemented by the FSA.
Between £24bn to £80bn would exit the group of medium-sized management firms (those with between £5bn to £50bn FUM), while between £28 to £62bn might exit the sector of smaller-sized firms, (those with FUM below £5bn).
The segment that would be worst hit would be smaller, non-UK focused mangers with “below average operating performance”, where D&T sees between 16.5% to 31.4% of FUM exiting.
The cost in terms of lost UK GDP is pegged at about £1bn at the central range of forecasts, D&T adds.
However, the impact on FUM figures does not tell the whole story, D&T points out.
In terms of the impact on operating margins, while smaller firms again are likely to be hardest hit, it does not follow that larger firms will do best. D&T says medium-sized firms will do better than larger firms in this respect.
”Margins for the industry as a whole are estimated to fall by between 3.4 and 5.2 percentage points. The least impact is anticipated on the medium segment, and the most on the small segment, where the potential impact ranges from 4.8 to 7.5 percentage points.”
Also, countering the issue of FUM exiting the UK, the direct benefit to consumers is valued at between £61m to £116m from the measures proposed in CP 175, D&T estimates.
And while the industry would not like to see FUM levels decrease, research suggests London’s status as Europe’s premier financial services location is far from under threat. Firms looking to move will also face other costs.
D&T calculates it can cost up to about £16m to shift an office of 100 people overseas, including the cost of finding new premises, obtaining the required office equipment, and finding new employees to replace those that refuse to move with the firm.IFAonline
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