22nd April 2020

Covid-19. IFA blood test results now through

Since 1 July 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.

Government loans granted to firms in a bid to tackle the coronavirus fallout cannot be used to meet capital adequacy requirements, the FSA warned last month in a helpful ‘Dear CEO” letter. They added that: "Government schemes to help firms through this period can be used to help firms plan for how they will meet debts as they fall due and in the immediate period." 

And only this week, the FCA has warned the coronavirus crisis is no excuse for advisers not to renew their professional indemnity insurance "in a timely manner", saying the market was still functioning.

Really, it is that bad we think? “Help firms remain solvent”…..arrrgggghhhhh!

The Treasury and FCA will need to look at some protection for the intermediated advisory world, distribution is the weakest part in the world of financial services when it comes to capital adequacy.

To summarise in a very blunt way, for some firms, large and small, a substantial FOS adjudication or FSCS call for money, or both will see firms just collapse, in turn placing that burden on those firms that are left.

With these thoughts in mind two weeks ago, with the impact of Covid-19 really starting to hit the country hard, we felt it would be very interesting to do a business ‘blood test’ on the health of IFA businesses in this continuing lockdown.

With a backdrop of businesses running or trying to under lockdown, increasing home working operating costs are being further complicated by rising regulatory fees, unexpected FSCS cash calls and increasing PI costs, we asked “how your business” was and could be impacted by Covid-19? 

We said that we would share the results with the media, FCA and other relevant parties.   

The results do not paint too good a picture I am afraid and in many cases were quite predictable. 

This survey was only running for some 10 days as we wanted to get the test results quickly.

Those results provide great insights into the minds of Advisers during an exceptional period, with hundreds of comments that could be really useful to your own planning.

Some key findings are: 

44% of those completing the survey do expect to furlough staff over the next three months. 

Only 3% of respondents feel that banks are being helpful after the government SME business support announcement. 

Just 18% of advisers have asked for access to Government funding. 

14% of firms believe that if they don’t have access to funding their business will fail. 

47% of advisers have been focusing on existing client communications since self-isolation has been implemented, with a further 14% concentration on adapting existing business models due to home working. 

76% of those taking part believe that there should be a regulatory fee holiday for advisory firms until 2021. 

75% of Advisers are worried about unexpected FSCS levy cash calls coming over the rest of the year.

77% believe PI cover should automatically renewed for another year in the current climate for those with claim free status. 

Do download your copy here and pass this link on to your friends and colleagues. And do read the comments, they are so very revealing.

Panacea Surveys, Panacea Comment