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Topics: FSA| Capital adequacy| ebr| AIFA| association of IFA
FSA plans requiring IFAs to hold capital of at least three months of their annual fixed expenditure risk the sustainability of the sector, warns the Association of Independent Financial Advisers (AIFA).
Responding to the regulator's decision to go ahead with its Expenditure Based Requirement (EBR) Prudential proposals, AIFA says the plans fail to meet the stated aim of providing ongoing support for consumers when a firm is wound up, but not burdening remaining firms.
The plans call on all IFAs to hold a minimum £20,000 buffer by the end of 2013.
Andrew Strange, director of policy at AIFA, says: "The current proposals will see the capital requirements for all firms increase. There is a clear risk that this may result in a less sustainable sector, running counter to FSA's original objectives. The increase in capital required is unrealistic within the timescale set."
"The FSA must realise the effects these proposals will have on the profession and reconsider them as a matter of urgency."
He welcomes the FSA's decision to accept the AIFA lobby and extend the deadline for implementing changes to 2013, but says the Association is still "far from happy with FSA's conclusions".
"Proposed regulatory changes cannot benefit consumers if they only serve to reduce the number of financially stable and viable firms in the sector from today's level," he says.
AIFA is concerned advisers have so far failed to grasp the wider implications of the FSA's wish to consult next year on the application ‘of a consistent approach to the Expenditure Based Requirements to all firms...irrespective of the firm's business model'.
"The Policy Statement does not elaborate further on this, but FSA must ensure there is fair and responsible treatment of Appointed Representatives or self-employed advisers. This is a significant issue raised by the profession. As an example, the levelling up of the EBR requirements for these fundamentally variable costs would be deeply inappropriate," he adds.
Amanda Davidson, AIFA deputy chairman, says: "AIFA has conducted significant work over the past months to deliver both an extension to the implementation date and demonstrate to the FSA that further consultation on EBR is necessary to avoid clear detriment to firms and the clients they serve.
"Any firm not in AIFA membership and thus supporting our efforts should consider carefully the cost of additional capital the FSA will force them to hold.
AIFA is forming a working group to consider solutions in advance of next year's consultation.
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Dead Money
The FSA's capital adequacy requirements are ludicrous. Good IFA's will put their hard earned cash aside (it can't be touched - ever unless you want to be in breach.) Bad ones in trouble will spend it all and close down; leaving liabilities to FSCS. If the FSA's mandarines had a brain cell between them they would worry about real risks to the economy like the banks, who nearly bankrupted us all on their watch - pathetic! Nero fidlding comes to mind...
Posted by: Simon Webster
capital adequacy
Frankly if we can't put the value of 3 months expenses to one side then we should not be in the business of advising others what to do with their money! A case of do what I tell you not what I do.
Posted by: derek richings
Whose idea was it
Looking at the ABI's origional submission to the FSA, it was the banks idea that IFAs needed higher capital adequacy. The FSA implements this without due consideration or any rational whilst allowing those that concieved the idea for them to pour their balance sheets down the drain. Unbelievable!
Posted by: Bob Newton
Daft Comments
Derek Richings I can’t believe you seriously made that statement. Did you know that the FSA has proposed holding this sum for six years post retirement no doubt so that they can dip into this pot to pay for yet more of their retrospective reviews. The other comment I would take issue with is the use of the equity in ones home! This would not be possible if your ran your business via a Ltd Co unless your gave the FSA a personal guarantee and unincorporated your Ltd Status. As the FSA does not adhear to the rule of law you would need a brain transplant to agree to this!
Posted by: Simon Mansell
Compare and contrast IFA treatment with that of the banks!
According to the Ernst & Young report, the FSA forecasts that almost a fifth of financial adviser firms are now loss-making and a further 24 per cent have reported profits of less than 5 per cent of turnover. The irony is that this is due to the collapse of the banks and falls in the market, all on the FSA watch. At a time when millions of pounds have been pumped into the banking sector to keep them afloat just look what the FSA is doing to the independent sector, the only sectors proven to have consumer confidence. The FSA have proposed changes to capital adequacy to say all firms will be required to hold a minimum of £20,000, representing double of the current level of £10,000. This is dead money sitting in a non-interest bearing account.
Posted by: SIMON MANSELL
New IFAs from Redundant Bank/ Life Office Staff
These proposals wont help what appears to be a new wave of IFA recruits coming from redundant bank/ life office staff
Posted by: John Hooper
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why more capital?
The FSA appear not to have provided any evidence that increasing the capital held in IFA firms will be of benefit to the consumer. But how to we press them to make the case? It is becoming very clear that the FSA have no respect for the small practitioner firm community and that they wish to push us out of business. Our clients value our services and we can prove that they do. We somehow have to try and resist these moves by the fSA but I really do not know how we can-unless we can somehow call them to account for increasing the burden of regulation to the extent that smaller firms can not cope with the time the regulator requires us to spend on reporting to them, and now the threat of a currently not clearly defined balance sheet requirement. How can we require the fSA to set out their reasoning more clearly using actual research and fact to back up their actions? The facts do not back imposing any more regulatory burdens on IFA's Is some kind of campaign required? Can we get a spokesperson onto a current affairs programme? Can we get consumer orgnanisations to back us?
Posted by: graham worrall