Critics of FSA proposals to up firms' capital adequacy requirements are calling on advisers to have their say after the regulator revealed it had so far received only a handful of responses to its plans.
Less than a week before the end of a five-month consultation, the FSA says it has received 15 responses compared with almost 800 to the Retail Distribution Review's (RDR's) first paper in June 2007.
The FSA says trade associations are among the 15 respondents and represent "thousands" of firms and individuals, but trade bodies were also listed among the 768 responses to the RDR in 2007.
Small firms, national IFAs and support service providers have joined forces to condemn a move they say could lead to a "cataclysmic" drop in the number of advisers over the next few years.
"This is the thing, more than the RDR, that will cause a significant burden for smaller businesses," says David Golder, managing director of IFA Services at support provider Bankhall. "We are encouraging people to respond, and quick."
In November, the FSA proposed doubling the minimum level of capital resources for personal investment firms (PIFs) to £20,000.
In addition, it says the 'expenditure based requirement' - which demands PIFs hold three month's worth of fixed costs - will be extended to all firms. The consultation ends on 31 March.
Networks such as Sesame are already subject to the three month rule, but national IFAs are currently required to hold just one month's expenditure, which they will now have to treble.
Golder says the proposals harm only those firms that have done things "correctly", leaving "transactional" advisers relatively unscathed.
"Take a look at how firms have developed. They have been encouraged to bring in technology, compliance and administration, and to hire people. These are all fixed costs that will count towards their requirements for capital.
"They [advisers] should be making it very clear to the regulator the consequences they face."
Carey Shakespeare, sales and marketing director at Park Row, adds: "The FSA is pricing firms out through capital adequacy and I think there could be a cataclysmic fall in numbers between now and the end of 2012. We're going to have 40-year-olds leaving the industry."
In total, the FSA has identified more than 5,400 companies as PIFs, which it deems those "for which the most substantial part of its gross income is derived from advising on investments or arranging deals in investments".
The proposals were widely criticised by the Association of IFAs (AIFA), whose director general Chris Cummings said they meant a typical 20-adviser firm would see its expenditure-based requirement leap to £300,000.
The trade association is still working on a response it says has been shaped by the contributions of hundreds of its members over the last three months.
But Ivan Martin, executive chairman of IFA network Sesame, says "it was time" firms' capital rules were reviewed.
"We support the idea of higher capital coming into the industry," he says. "The previous arrangements have been in place for 14 years and it was time for a review. However, doing so now, when the industry is in crisis, was perhaps not the best idea."IFAonline
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