How does capital adequacy work in practice for your hybrid-network IFAs?

There is a tremendous advantage in being a member of our Hybrid-Network and this aspect of network membership is much under-rated. The trials and tribulations endured by the directly authorised advisers are legion – they will have to account to the FSA for capital adequacy from 2013 on a quarterly expenditure based test basis. Not only is this a complex calculation for them but also there is the matter of the accounting treatment of "goodwill." The goodwill asset uniquely does not count as an asset for FSA directly authorised firms (compared with any other industry). The "goodwill" may even be trail commission of, say, a guaranteed £10k per week, but that will count for nought when delivering accounts to the FSA's Prudential department for capital adequacy checking. This aspect alone makes the purchase of other IFA practices a very difficult matter for small directly authorised practices and has led many firms to join our network. By joining they benefit from the release of capital from their balance sheets.