Covid-19's financial impact will destroy 14 per cent of advice businesses unless they are able to secure additional funding, research by PanaceaAdviser has suggested.
The adviser forum surveyed 166 of its members and found that while 45 per cent of advisory practices do not think they will have to furlough workers, 44 per cent of them will have to consider that option.
Furthermore, 18 per cent of those surveyed have asked for government support while 14 per cent warned that unless they were able to secure additional funding, their businesses would fail.
Derek Bradley, chief executive of PanaceaAdviser, said although advisers will have built up capital reserves in light of their regulatory duties, this may not be enough to allay the "gut concerns" of many advice businesses in the industry.
He commented: "This is pretty scary, especially for smaller businesses. If there were a sudden cash call, such as a rash of complaints relating to Covid-19, or an unexpected additional levy from the Financial Services Compensation Scheme, smaller businesses will end up suffering."
The FSCS was a real concern for advisers. Some 75 per cent of respondents said they were worried about unexpected FSCS levy cash calls coming over the rest of the year.
"Without regular fee income coming in, there are real concerns the cash buffer will be eroded. While old-fashioned sole traders or traditional partnership-style firms can put their own personal wealth into the business, many others risk failing over the course of the year", Mr Bradley added.
Since June 30, 2017 it has been a regulatory requirement that firms need to hold the higher of £20,000 or 5 per cent of their investment business income in order to meet capital adequacy rules.
But Mr Bradley said this "unprecedented" period of lockdown, coupled with regular tax and PAYE bills, on top of potential complaints and levy hikes, would put some companies under exceptional pressure.
As a result, he called for the regulator and professional indemnity insurers to consider further measures of leniency for firms over the course of the next financial year.
Also in the survey, some 76 per cent of respondents said there should be a regulatory fee holiday for advisory firms until 2021, while 77 per cent said they believed PI cover should automatically be renewed for another year in the current climate for those with claim-free status.
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