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National advisers face £500m cap-ad shock

Seven of the biggest financial advice firms could be required to raise an additional £527m in capital under the regulator’s new prudential rules, according to the FSA’s own estimates.

A table published in the FSA’s prudential rules paper shows that six or seven firms will have to increase their cap-ad holdings in excess of £20m each while half of all adviser firms will not have to raise any extra capital.

True Potential managing partner David Harrison says while networks are already subject to the expenditure-based requirement, national firms will be hit hard by the changes.

Harrison says: “It may be that the FSA has recognised the past failings of large national firms and is ensuring they make much more capital available so that we are not forced to have a repeat of these failures. Just where the money will come from is difficult to see at this point when one considers the current lack of profitability in those models.”

Lighthouse joint chief executive Allan Rosengren says the firm is one of the most strongly capitalised in the industry and he does not expect to have to raise any additional capital.

He says: “The firms that will be affected will be those with debt or outstanding bank loans, firms that are badly capitalised or that hold the wrong type of capital structure.”

Towry Law chief executive officer Andrew Fisher says the new rules will “definitely have no impact” on his firm.

Money Portal head of distribution strategy Alan Easter says: “Money Portal is well capitalised and continues to be cash-positive monthly on an operational basis so we do not have to raise further capital. The current difficult trading environment will cause casualties which in turn will offer opportunities for a consolidator such as Money Portal and, depending on the price, appetite and risk, we may seek further capital to ensure that we can move quickly.”

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