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Kenmir warns lack of capital poses big threat to IFA sector

The economic model of the IFA sector may not be viable, according to FSA managing director David Kenmir, who believes substantial reform is needed if IFAs are to continue to thrive.

Kenmir claims most firms are substantially undercapitalised, with the main financial risks coming from their back-book of business rather than that currently being written.

Using a rough calculation, Kenmir told delegates at the Money Marketing Live event in London last week that the maximum number of clients available per adviser is 2,300 – which could only be reached if all 60 million UK residents sought independent advice.

Kenmir said the tendency among IFAs to strip out capital from their business at every opportunity has played a large part in this undercapitalisation. So has the transient nature of advisers, with RIs regularly changing firms and taking trail commission streams with them.

Kenmir warned that a further threat to IFAs could come from reasonably high-profile MPs, such as those on the Treasury select committee, taking an interest in trail commission.

Pointing to recent concerns over networks being forced to charge VAT on fees they charge members, Kenmir said if the Customs and Excise policy reversal cannot be successfully appealed, it will add more costs.

Kenmir admitted that the costs of PI insurance, the growing compensation culture and regulatory red tape have all played their part in pressuring margins and repeated his message that, in an ideal world, PI would not be mandatory.

He also cautioned IFAs over so-called “phoenix firms”, where a company is wound up, thereby ringfencing potential liabilities, and said they should not be viewed as a “free meal ticket to wipe away losses”.

Kenmir said: “The economic model of IFAs may not be viable and a number of factors have contributed to this. Saying that, I fundamentally believe there is a bright future ahead for firms able to adapt to the changing marketplace.”

•Money Marketing Live, p17, 18, 20


ACA elects Adrian Waddingham as chairman

The Association of Consulting Actuaries has elected Adrian Waddingham as its new chairman. Waddingham, a founding partner of actuaries and consultants Barnett Waddingham, will take office from June 1st. He replaces Mercer HR Consulting worldwide partner Gordon Pollock, who had been in the position for two years. Waddingham is also vice chairman of the International […]

Rate of change

Still on the trail of identifying key issues emanating from this year&#39s Budget and Finance Bill, I would like to turn my attention to the introduction of a minimum rate of corporation tax in respect of profits paid out as distributions (usually in the form of dividends) to other than corporate shareholders, in most cases, […]

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•”If you don&#39t shut up, I will kiss you.” – NU Healthcare PR Lorna Wiltshire threatens Lifesearch&#39s Kevin Carr. •”Compulsion – I think we will get that at the same time we find weapons of mass destruction.” – Sofa chairman Nick Bamford. •”I will be celebrating my birthday at a conference in Manchester with 2,000 […]

Verity&#39s view

Norwich Union&#39s decision to charge for guarantees on its policies has met with little controversy, just as with Standard Life. With Standard Life, at least, the tendency has been to say something like: “Well, it is in a mess after its disagreement with the FSA. Something had to be done. There was always a cost […]

Leading Edge June – Investment panel debate

RLAM’s asset class specialists discuss some of the findings from the panel session at our recent Investment Conference. By Rob Williams, Head of Distribution Welcome to the latest edition of Leading Edge. It has been an eventful six months since the last e-zine. The European Central Bank announced ongoing stimulus measures, while the immigration crisis in Europe threw the […]


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