The end of 2013 will see the first ratchet of the new capital adequacy requirements with the minimum capital required increasing to £15,000 or 1 month’s expenditure. Furthermore, over the next two and half years, the minimum will increase to £20,000 or 3 months’ expenditure. There are also new requirements which could increase this figure if the PII cover held by the firm carries exclusions or excesses above £5,000. For many medium sized DA firms this will present a genuine dilemma.
Only in March, LIFT Financial reported that they would be forced to concentrate on their self-employed arm rather than grow their employed, fee-based practice as their capital requirement could increase to £750,000 over the next 2½ years. Surely, the exact reverse of what the change to capital rules was intended to achieve.
For a firm with £1,000,000 turnover and fixed costs of £800,000, an additional £190,000 will be needed over the next 30 months.