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Independent view

With Chancellor Gordon Brown delivering what may be his final Budget two weeks ago, we have become accustomed to studying the small print to ascertain what alterations are really to be implemented.

This year has proved to be no different and some of the unintended consequences are now rearing their ugly heads.

One of the headline-grabbing topics was that of reducing red tape. Every business and individual in the land would applaud the Chancellor from the rooftops if only it were true.

At a time when we have witnessed such an increase in the public sector workforce, the likelihood of a softening of the nanny state and a return to common sense seems a long way off to me. It did not take long for the threats of industrial action regarding the raising of the civil services pension age for ministers to backtrack on decisions that the private sector has had to tackle for some time. No great appetite for saving costs here, then.

Anyone authorised by the FSA should know what is required of them. Now that we seem to have the final pieces of the FSA jigsaw in place, with the inclusion of mortgage and general insurance intermediaries, most financial products are now under the same regime, which is a very different situation to that prevailing when we had regulatory arbitrage in the late 1980s after the introduction of the Financial Services Act.

With such a high percentage of the FSA membership classified as small businesses, the standards which have to be met are, to say the least, a challenge for many and, inevitably, some will not survive. A good example relates to life cover. I am told that the maximum age for insurance cover when placed by a general insurance intermediary is 70. Just how easy is it for this rule to be breached?

If you really wish to delve deeper into the state of the wider financial services scene today – and it is unwise to ignore the issues in such a fast-changing environment – I would recommend the recent Deloitte report entitled 2005: UK Financial Services at a Watershed. This really should make you think about how your business can and will operate in the months and years ahead. Yes, it is time to wake up and smell the coffee. This document does not, in fact, introduce anything we are not necessarily already aware of but, as a snapshot of what is really taking place within the major financial institutions, it demonstrates that there are most definitely going to be knock-on effects for all our businesses, big and small.

As an independent overview of what is happening, it seems that Deloitte has had some fairly frank responses that the regulator might not have elicited and fundamental changes are upon us. The issue is about maintaining profitability and having the ability to adapt your business model to the changing market.

What affects these companies will also apply to yours and, despite opinions to the contrary, the errors of the past, together with the wider regulatory requirements of the EU in addition to the FSA, are decimating potential profitability.

Much debate has followed the commission changes made by Standard Life and the recent furore regarding indemnity commission is a foretaste of the future. Life as we have known it is changing for ever.

In the past, I have seen numerous business plans prepared by IFAs where 90 per cent or more of turnover is represented by indemnity commission. This type of approach is doomed as no longer will the insurance companies support your business unless they are seeing a relatively swift payback to the bottom line.

In future, your business model will have to stand up on its own merits so it can be properly financed on more conventional lines or be attractive for a third-party investor. In other words, you have to ensure that the advice you give provides for a regular stream of income, a sensible cashflow and profit.

The inference from the Deloitte report is that the banks will have the upper hand and it seems obvious that depolarisation is providing this, however well placed any good IFA is to service an increasingly wealthy population who want the personal attention and added value we can provide. Just do not expect a reduction in red tape, however.

Nick Conyers is a director of Pearson Jones


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