There has been much speculation on where new FSA regulations on capital adequacy will leave adviser firms.
Crunch time came on the 6th November when the FSA published its ‘Review of the prudential rules for Personal Investment Firms' detailing its plans to delay new requirements (3 months fixed expenditure with a minimum of £20,000) until 2013, which seems like a bow to common sense at first.
However, when taking a closer look what the FSA are actually proposing is phasing in these measures, starting in 2011 at one month of ‘fixed expenditure' and building up to three months in 2013. This brings me to ask, as should the rest of the industry, what is the FSA thinking? How many firms will be realistically able to afford the new requirements?
It is no secret that IFAs are on the whole undercapitalised. Indeed, a recent report out by Plimsol has highlighted that of the 1000 top adviser firms a staggering 265 will end the year in financial difficulty.
This gloomy outlook brings to light the gravitas of the FSA's decisions and their effect on adviser firms, some of whom are feeling the strain already.
Bringing the deadline forward will mean IFAs will struggle even more to cope with these changes as one month's ‘fixed expenditure' could equate to a lot of capital depending on back office support and firm infrastructure. In effect this will destroy the firms that they should want to nurture. The good quality firms with large overheads that invest in customer support will have to take the capital and put it in cash instead of investing it in improving client service.
Moreover, I would go so far as to say this actively goes against another of the FSA's initiatives, TCF. As advisers are either forced into networks or out of the market all together, advice will be driven into an elitist area where only those of high net worth will be able to afford independent advice and all other consumers will be pushed towards banks; this is definitely not in the interests of consumers.
I will reserve final judgement until ‘fixed expenditure' has been defined but in the meantime the FSA needs to change the model they are working to and start to think about those most affected by these proposals. I would call upon advisers to also question the FSA in its new requirements and to urge a rethink to take into account turnover, not just expenditure.
Sheriar Bradbury is managing director of Bradbury Hamilton
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