Financial Risk Outlook 2008

The FSA has published its 63-page guide to what it perceives to be the main risks facing financial services businesses in the current year.  For most intermediaries, much of the content will be too general, or less relevant to the kinds of markets that we operate within.

We've produced a slightly tongue-in-cheek summary of it which we hope will appeal to professional intermediary firms - you can download this in PDF format by clicking on the link to the left, after clicking on 'permalink'.

Essentially, relevant stuff for IFAs starts on page 46, under the heading of Retail Intermediaries.  The FSA is concerned about the sustainability of our business models, partly because we are (apparently) failing to pay sufficient attention to the issue, and partly because the house of cards is about to come crashing down around us, due to our clients' debt exposure coupled with a "less benign economic outlook".

At face value, there is undoubtedly truth here for us to think about.  At 2020FS for the last 2-3 years we have been whittering on about the need to re-engineer our businesses, in order to make them "recession-proof".  We even held seminars on the subject in 2006.  Without a doubt, too many clients are too highly leveraged, and have been sublimely unaware of the attaching risks.  This may be particularly the case in the BTL market.

However, we would take issue with the FSA's assertion that "Many firms pay insufficient attention to the sustainability of their business model..."  In our experience, most IFA firms that comprise living, breathing financial-planners, are in fact intently focused on sustainability, not least because of the "Open Chequebook" approach that the FSA adopts towards revenue-raising.  A little later in this report, the FSA indicate that, "Firms might need to use capital reserves to meet ongoing expenses in the event of a reduction in business activity, or need resources to meet the increased complaints and subsequent claims which often arise when economic conditions deteriorate."  Interestingly, this concern about our reserves has not held the FSA back from an above-inflation increase in their projected tariffs for 2008/09, and my guess is that the Regulator will charge whatever it wants, regardless of (a) the economic climate, or (b) the impact upon our reserves.  We do, after all, have historic precedents here.

But, hey, there's always that final salary defecit to address, isn't there?