Selling up will only grow harder, says Andy Cook
With just weeks to go before the FSA regulation deadline expires, we are starting to get a handle on just what the bottom-line impact of regulation will be.
Accountacy firm Mazars surveyed 200 brokers and discovered that 54% underestimated the cost of regulation to their firm while 40% said that the costs matched their expectations. So, despite the doom and gloom prophecies of last year, brokers still managed to underestimate the impact of the regulations. It would seem that the FSA did a magnificent job of allaying everyone's fears last year, giving in on commission disclosure and some other key points. But in fact, many of us relaxed a little too much, not realising that the regulations meant a thorough examination of businesses and their relations with customers and suppliers. For many, these relationships are relatively informal.
What impact will this all have on profitability? According to the survey, around 95% reckon that the cost of regulation will knock off 10% or less from profits. Of these, 45% reckon that the impact will be 5% or less. At face value, these figures don't seem too bad, especially in a hard market when there is plenty of cash in the bank. But with rates on many lines softening, it may be hard to keep profits up. This makes it harder to invest, harder to attract investment (such as the AIM float completed by The Broker Network this week) and the price of selling up is deflated. A few could find out that it might have been better to sell three months ago rather than "giving regulation a go".