RDR: Capital requirements will drive small advisers to networks
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The retail distribution review proposals will drive more small adviser firms to join networks, according to an impact assessment published alongside today’s policy statement.
The note, prepared by Oxera, says some smaller firms will exit the market as a result of the increased capital requirements while others may choose to join networks or large IFA firms.
A number of firms interviewed said large IFA firms and networks will benefit as small advisers turn to them for protection from the increased regulatory burden.
The FSA indicates that of a total of 5,340 firms, between 2,576 and 2,691 will not need to raise additional capital following the increase in the minimum requirements while a number of very large firms will have to increase their capital requirements significantly.
Up to 14 firms will need to raise between £4m and £20m each and up to a further seven firms will be required to raise more than £20m each.
The impact assessment suggests the increased capital requirements will raise the barriers to new entrants although it has seen no evidence that this will have a material impact on potential entrants’ decisions.
The available evidence suggests more than 10 per cent of advisers would leave the market as a result of the required higher professional standards. But it believes the FSA’s proposed alternative assessments will allow some of those advisers to remain in the industry, reducing the magnitude of this effect.
Increased costs to IFAs of complying with the new independence requirements could see IFAs leave the industry if they are currently finding it only marginally profitable, or to take up a role which does not allow them to offer investment advice to clients, such as becoming an introducer or para-planner. These requirements may also lead to an increase in IFAs choosing to specialise in certain markets, the impact assessment says.
Respondents anticipated they would have to spend an additional five hours per week on research as a result of the new independence requirements. The median estimate from those surveyed regarding the financial impact of the change was £2,000 per registered individual per year.
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Readers' comments (1)
Sam Caunt | 26 Mar 2010 2:34 pm
The FSA have stated that if a firm's structure is such that its income consists of a high proportion of non regulated income (e.g. tax advice) with a correspondingly higher level of outgoings which increases its CAD requirements, then tough. That is a business decision by a firm which is of no concern to them. What the FSA cannot understand is that the reason for the restructure was almost entirely TCF!
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