Advisers may move away from salaries to variable pay to help mitigate the new capital adequacy rules coming into play by 2015, Sense Network told FTAdviser.
In an interview with FTAdviser, Steve Young, Sense commercial director, warned that the new capital adequacy rules would mean a “significant increase” in the amount of capital that advisers, “especially medium-sized” advisers, will have to keep in the bank to satisfy the regulator.
He said: “I think the FSA will need to think this one through carefully, but I think there will be a move away from salaried advisers to variable pay because, of course, having a salary counts towards your expenditure which determines how much capital you need to hold.”
Mr Young believes that the capital adequacy increases will drive consolidation within the market.
He said: “Some people will join a network as they can provide a shelter to capital adequacy because you don’t need your capital adequacy if you are part of a network. Some people will join together as it makes sense too.”
Mr Young believes that there will be more networks joining together post-RDR and although he dismisses the notion of another large failure, he believes there will be “interesting times” for provider-owned large networks.
He said: “My guess will be that we probably won’t see a big network failure as there are insurers backing them but there is another issue that sits within that.
“If you are owned by a provider and you are losing money as a network, it’s a breach of the adviser charging rules if the provider is putting money into the networks as that is not allowed.
“So a network owned by a provider but [that] is losing money will either have to cut its costs or increase its charges.
“Providers can’t offset it as it is a breach of the rules – they can’t put money into the distributor, otherwise the argument would be that you can have an advantage by charging less to your consumers in adviser charging.”
