The FCA flags risks and best practices on consolidation in the Financial Advice and Wealth Management Sector

On 31 October 2025, the Financial Conduct Authority (‘FCA’) published a multi-firm review examining the rapid consolidation across the UK’s financial advice and wealth management sector. With mergers and acquisitions accelerating in recent years, often backed by private equity, the FCA’s findings are a clear signal to wealth management and financial advisory firms about how this trend is being managed and supervised.

Why the FCA conducted the review

Consolidation can bring benefits:

• Greater efficiency and scale

• Improved technology

• Better continuity of service

However, the FCA warns that poorly managed growth can also lead to:

• Financial strain

• Weak governance

• Conflicts of interest that ultimately impact clients

The review focused on how consolidators are structured, funded and governed, and whether they are maintaining the resilience and integrity expected under existing regulation.

Key findings:

There were no real surprises, but clear indications of how the FCA wants to see deals structured, due diligence completed, and firms governed.

Ocorian has worked with several consolidators over the past ten years, and seen a range of models, representative of both the good and poor practice examples outlined by the FCA.

Good practice

The FCA noted examples of well-run consolidated groups where:

• Risk and governance frameworks kept pace with the group’s growth

• Acquisitions were backed by robust due diligence and careful integration planning

• Boards provided effective independent challenge and ensured regulated entities were properly resourced from both a financial and non-financial perspective

Areas of concern

The regulator also identified practices that could lead to harm if not addressed:

High debt levels: 

Some consolidators rely heavily on borrowing which exposes regulated firms to liquidity pressures or cash upstreaming, relying on cash flow from the regulated entity to meet the debt repayments of the unregulated parent company. This weakens the regulated entity, as the FCA has highlighted, by reducing their financial resources, in some cases to the minimum. Although, or smaller, less well capitalised consolidators, this may be the only way they can make their model work.

This could become a barrier to entry for new acquirers with capitalisation based on debt. There are a couple of possible outcomes if the FCA pushes harder on this point:

1. Well-capitalised ‘super consolidators’ dominating the UK financial advice market, or

2. UK banks re-entering the retail financial advice market, acquiring an existing consolidator with national coverage, or regional coverage in areas they consider to be strategically beneficial.

We are already seeing overseas banks identifying value in the UK retail financial services market.

Weak group oversight: 

Inadequate monitoring of financial and operational risk at the group level and across multiple entities, limited stress testing and contingency plans. Within this, the FCA identified some firms not being prudentially consolidated.

Avoiding prudential consolidation has been the goal of some firms due to the impact this has on capital adequacy requirements of its financial advice businesses. However, this can lead to the underestimation of interconnected risks and resources.

Carrying out stress testing is key to identifying areas of potential risk, and supports firms in determining whether they have access to capital and cash in unforeseen circumstances, noting that intra-group receivables and/or goodwill may not actually deliver cash in a crisis.

Complex corporate structures: 

Certain business models (such as those that include dual-parent structures and third-country parents) reduce regulatory visibility or limit prudential supervision. A key area of concern for the FCA is the holding of goodwill outside of investment groups, sitting on the balance sheet of a non-UK parent entity, making it more difficult to assess the uncertainty of value assigned to goodwill.

The FCA does appear to be pragmatic about this from a backwards-looking perspective. We are aware of their discussions with firms asking them to hold goodwill within UK-regulated entities for future deals, but not currently requiring them to restructure historic acquisitions.

Integration challenges: 

Insufficient planning around client service, adviser retention, and culture.

This links to the FCA observation that some due diligence can be ‘tick box’. Over the past 5 years we have seen the breadth and depth of due diligence reduce. Scopes no longer include an assessment of culture, which can be assessed in several ways, including the review of board papers, compliance reports to the board and actions taken by the board.

Another key area we have seen a reduction in is advice suitability reviews. Firms used to test the advice quality of every adviser, in every area of advice. Firms have reduced scope including a much higher-level sampling of advice files, impacting the intelligence they get on the quality of historic advice, the quality of advisers, and the efforts required to enhance advice standards and evidencing of suitability.

Conflicts of interest: 

Instances where advisers may be incentivised to recommend in-house products within vertically integrated groups.

What this means for firms

• For advisers and wealth managers, particularly those involved in mergers or acquisition discussions, the review reinforces that scale must not come at the expense of governance or client outcomes.

• Firms should review their funding models, group structures, and integration processes against the FCA’s expectations, ensuring resilience and compliance throughout any consolidation activity.

• Expect the FCA to police consolidation activity through change in control applications.. We can expect to see them working collaboratively with  good consolidation and restricting the acquisition activity of business models and structures they identify as weakening regulated entities and impairing their oversight.

Following consolidation activity, firms should remain alert to the ways in which the FCA may identify weaknesses in both capital adequacy and conflict management, despite the FCA mentioning that the thematic review will not lead to new consolidation-specific rules.

For example, the FCA continues to scrutinise the treatment of goodwill in prudential reporting and can detect inappropriate inclusion of intangible assets within regulatory capital through RegData regulatory form submissions, financial statement analysis, or targeted supervisory reviews.

If concerns arise, the FCA may commission an independent review of capital adequacy and accounting practices to test compliance with prudential requirements.

In parallel, the regulator may identify unmanaged conflicts of interest through file reviews, revenue analysis, or governance assessments - particularly where advice patterns suggest a bias towards in-house products or recently acquired entities. Such findings could lead to heightened supervisory engagement, increased capital requirements, or enforcement action where firms cannot evidence that client interests have been properly safeguarded.

Supervisors can request data showing the proportion of income from in-house products or vertically integrated structures to identify financial incentives. The FCA may also assess whether boards or compliance teams have independent oversight of recommendations and product selection.

Poor management of conflicts, particularly where commercial incentives outweigh client interests, can lead to findings of poor consumer outcomes or breaches of Principle 8 (conflicts of interest).

What this means for your clients

• Consolidation can give clients access to more expertise, better technology, and stronger backing.

• Clients should be aware of who owns their adviser firm and how this might affect the advice they receive.

• The FCA’s focus is to ensure that the benefits of consolidation do not come at the cost of service quality or independence.

The bottom line

The FCA’s message is clear: consolidation can strengthen the wealth management sector, but only when supported by sound governance, prudent funding, and a client-first culture.

How can we help?

The FCA’s findings highlight that the biggest risks in consolidation often stem from weak integration, inadequate governance, and unclear oversight. We can play a key role in addressing these challenges by helping firms:

1. Strengthen governance and oversight

We can review governance frameworks to ensure board structures, senior management responsibilities, and reporting lines remain effective as firms grow or merge.

2. Assess acquisition and integration risk

Before and after acquisitions, we can carry out regulatory due diligence to identify whether newly acquired entities will fall under the scope of regulatory prudential consolidation. Furthermore, we can assist in identifying potential issues in adviser practices, capital and liquidity adequacy, and conflicts of interest. Post-acquisition, we can help align certain policies and procedures across the enlarged group.

3. Support ICARA and prudential compliance

For firms in scope the Investment Firms Prudential Regime (‘IFPR’), we can assist with preparing or providing an independent review of your firm’s ICARA process and ICARA document, stress testing, and group-wide risk assessment — ensuring that funding and debt structures do not undermine regulatory capital or liquidity positions.

4. Manage conduct and conflict risks

We can design or review frameworks to manage conflicts of interest, particularly where firms are vertically integrated or advisers are incentivised to recommend in-house products. We can also ensure Consumer Duty outcomes are clearly evidenced and monitored.

5. Embed a culture of compliance

We can help firms build a compliance culture that scales with growth — through adviser training, board workshops and independent monitoring.