Apfa warns advisers are not prepared for new cap-ad requirements

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Apfa senior technical adviser Linda Smith

The Association of Professional Financial Advisers has warned firms are not prepared for the new capital requirements being phased in from the end of the year. 

The new prudential rules for personal investment firms mean all advisers must hold capital worth the greater of four weeks expenditure based requirements or £15,000 by the end of 2013, the greater of eight weeks EBR or £15,000 by the end of 2014 and the greater of 13 weeks EBR or £20,000 by the end of 2015.

APFA research, carried out by NMG Consulting, shows 88 per cent of advisers are aware of the new rules but only 51 per cent think they are clear.

Some 20 per cent of advisers say they do not currently hold £20,000, and a further 25 per cent do not know. Of these, 54 per cent say they are not sure how their firm will meet the requirement to hold £15,000 or four weeks’ EBR by the end of 2013.  

Almost 20 per cent say the firm will need the principal to invest their own resources and 5 per cent say they will require a cash injection from shareholders.

Apfa senior technical adviser Linda Smith says: “Advisers are split into haves and have nots when it comes to capital holdings. And while most know that the requirements are changing, many either still are not aware of the exact details or confident they are going to meet them.

“This is particularly alarming when you consider that the requirements for many firms could be a lot higher than £20,000, because of the expenditure based requirements. For example, a two-person firm with six staff will need to hold capital against everything that is guaranteed to go out, from salaries to lighting costs. If they have annual outgoings of £200,000, by December 2015 they will need to hold £50,000 as capital.

“Advisers are coming through a significant period of change post-RDR, but with the first set of increased capital requirements coming into effect in six months, preparing for it needs to become a priority now.”