Advisers have declared readiness for the long-awaited introduction of this month’s capital adequacy rules.
From 30 June the Financial Conduct Authority will replace the capital adequacy regime for intermediaries, which had been in place since 1994 and only mandated a minimum of £10,000 be held by a firm.
The new regime will mean firms will have to hold capital resources of the greater amount of £15,000 or 5 per cent of investment business annual income.
Chris Hannant, director general of the Association of Professional Financial Advisers, said this should not be a challenge for too many firms, and that he had not heard concerns from members.
He said: “If you are running a business, even if you are relatively small, you need a certain amount of capital to make sure you pay your bills and £10,000 was quite small - you could be a business with a turnover of £4m and only need to keep £10,000 in capital.
Keith Richards, chief executive of the Personal Finance Society, also predicted the industry would be ready for the new capital adequacy requirements. But he said larger firms could struggle.
“Medium to large-sized directly-authorised firms with a high income turn-over are the most impacted, but in most cases the new rules are still not as severe as the previously proposed expenditure-based (rules), especially for employed models.”
The new rules are aimed at addressing concerns the FCA had following research into firms’ capital reserves, which found 90 per cent of personal investment firms were required to hold only the minimum of capital, regardless of their income.
The minimum amount of capital will be increased again in a year, with advisers having to hold at least £20,000 by 30 June 2017.
Dennis Hall, chief executive of London-based Yellowtail Financial Planning, pointed out budgeting properly is what advisers tell their clients to do all the time, so no adviser has any excuse for not being prepared.
He said: “If a firm wasn’t ready, I would wonder what they have been doing for the last few years and everyone tells me they are really busy at the moment, so I would have thought everyone would have had time to build up that level of capital.”
Richard Ross, director of Norfolk-based Chadwicks, said the Retail Distribution Review has tended to make businesses more stable and less dependent on transactional business.
He said: “This (capital adequacy requirement) would have been very different five years ago. I wouldn’t imagine this would be a problem for most businesses that went through RDR.”