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In cap ad terms, I wouldn’t discount anything – not even joining a network

The FSA has provided a jolly helpful table in its Prudential rules paper showing its estimates for the extra amount firms of different sizes will have to set aside under the planned capital adequacy rules.

The regulator suggests that six or seven firms will be expected to find another £20m or more, while, taking one of the lower categories, 43 to 50 firms will have to find between £500,000 and £1m.

In a nutshell, many businesses will see the amount of money they have to set aside rocket.

Of course, everyone at the big firms seem to think they are either not in such an unfortunate category or have plenty of cash in the bank.

But I can’t help feeling that some of the big players and those in the next five or six levels down may well need to start thinking of a plan B.

As I’ve said before, if you are a network member you are all right (for this bit of the reform anyway) and people keep telling me that small non-network IFAs hit by the new minimum should be able to find the extra £10,000.

I am not suggesting this is brilliant news by the way – but it does not seem to be a threat to their existence.

I also understand that the full RDR gets to be an altogether nastier cocktail when it is mixed with more exams and a model change. But I’m going to save the argument about small firms for later in the week.
For those medium sized firms, which are worried that they will struggle to find the cash, can I suggest that now may be the time to get together and talk about things.

The changing landscape may leave you with no choice but to do something different with your regulatory set up.

Getting together could be an opportunity to share concerns and to refute some of the FSA’s arguments. Some of those who emailed about my last view suggested the whole idea is wrongheaded – the industry needs to tell the FSA why.

At least, firms need to explore the case for a much longer introduction period.

I am well aware that many regional firms have left their network days long behind them, if they were ever there in the first place.

But it might be the time to consider forming an alliance or their own network, which could help share some of the burden.

They might create an informal coalition to put out the feelers to existing networks to see if some bespoke arrangement could be tailored to firms of their size. They might get together to ask their support service providers what they intend to do.

Ken Davy’s SimplyBiz is to set aside part of its fees to fund firms through the change through subordinated loans – an offer that will apply to new joiners too. No doubt other support services firms will be considering their options as well. We even have a new player or at least an existing player expanding its services – in True Potential. It argues that its low charges will make it a natural home for many advisers, though I’m sure in coming weeks, Bankhall, Threesixty, Paradigm Partners et al will have something to say about that. Will some of them consider setting up a network too? It may be difficult to countenance given what they have said in the past. But desperate times require desperate remedies.

There are other possible routes to ease the burden such as making advisers self employed to minimise expenditure for the capital adequacy calculation within some larger structure though there are hurdles here too.

One thing I am sure of, is that even my suggestion that joining a network may be an option, will risk sending the blood pressure of many owner managers soaring.

Most, I am sure, are as attached to their operational independence as they are to their regulatory independence. Going it alone for regulatory purposes is seen by many as part of the evolution of a firm. Some will see joining a network as very much a retrograde step.

But I do think that firms will need to consider what to do next pretty fast.

Money Marketing would be more than willing to host some discussions if any firms were interested.

We could easily do so on a non-attributable basis i.e we wouldn’t report what firms were involved if that is what was required – no journalist in the room – now there’s a rare offer from an editor.

What we would ask is that you let us have you views or conclusions in general terms to help us hone our own arguments.

Alternatively you might prevail on your trade bodies or professional bodies to host the discussions or sort something out yourselves.

But firms need to start planning for the worst outcome from the FSA and work out how they find more capital at a time when capital is scarce. If you want our help facilitating things please let me know.


The curse of long-term cash

Trevor Greetham, Head of Multi Asset at Royal London Asset Management, reveals why clients should be seriously concerned when short-term holdings of cash turn into a long-term investment. There is nothing wrong with holding wealth in the form of cash on a short-term basis. For many people capital stability is important and access to ready cash […]


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