View more on these topics

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

Recommended

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, […]

Out of context

•”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 […]

Reforming India: just the beginning

By Kunal Desai, Neptune India Fund

As global investors continue to scour emerging markets through the lens of reform potential, India shines bright. Indeed, we think it can sparkle even brighter. We anticipate India’s self-imposed 10-year ‘policy holiday’ to turn into one of the most pro-growth and pro-investment policy calendars seen in Asia in years. The Indian electorate has engineered a historic verdict. We now have the strongest Indian government since 1984, with the pro-market Bharatiya Janata Party (BJP) achieving an absolute majority for the first time in the party’s history.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com