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Plans need stress-testing

The FSA’s RDR reforms move too far and too fast and show the regulator is cut off from the reality of running a small or medium-sized business.

Some adviser businesses are, of course, worse off than others. Those that are particularly in the firing line are medium sized firms that are not members of networks.

If you take the combined costs in money and time of getting advisers up to level four by 2012, the need to shift model and the need to hold more money in the business in liquid assets for capital adequacy, then it all becomes extremely onerous.

This is at a time when business is down significantly. The sad thing about the FSA’s stance is that aspects of the reform are necessary in the long term.

Money Marketing has by and large supported the increase in qualifications to this level. We hope it is possible to come up with a compromise that properly takes account of experience.

In addition, we always thought that advisers should be able to cope with changes in model, provided that the FSA did not move to a blunt pure fee system.

But now, having offered a compromise in the interim paper, the FSA risks losing a great deal of goodwill by putting in place thumping capital adequacy requirements and a three-year programme to get up to a minimum £20,000 or three months of expenditure.

As a long-term goal, there is merit in the proposals but, given the timetable, it turns into a short-term punishment instead.

This may sound like a alien concept to the FSA, especially given its recent track record in assessing the banks’ models, but it should consider just how much stress this will put on the business plans of advisers.

We believe these proposals need to be considered in their entirety because they cost money in their entirety. The biggest issue is how many firms the FSA will drive from the industry or into unnecessary firesale mergers.

If advisers believe the speed of reform will push them from the industry they need to respond again and try and get the regulator to see sense.

At a very minimum, given that the depth and length of the recession is still an unknown quantity, the FSA should reconsider the timetable.

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