The Financial Conduct Authority is right to look into advice firm consolidation, as it is a "phenomenon" that is changing the market, according to a senior official at the regulator.
Speaking to FT Adviser, Nick Hulme, head of department for advisers, wealth and pensions at the FCA, said adviser consolidation has begun to “ramp up again”, which is why the regulator has started another review, seven years after the last one.
He said: “I saw a statistic that said 48 per cent of advisers have been approached in the past year by consolidation firms, which I think just adds more [consolidation] to it.
“But ultimately, it's a phenomenon that's changing the market structure and the market dynamics and it's absolutely right that we look at things that are becoming a bigger slice of the pie.”
He said the consolidation review fell into the FCA’s three strands of work covering the advice profession.
These are, in a nutshell: looking at client outcomes; prudential regulation; and the governance and skill set of the profession.
“We've seen things in supervisory visits that aren't always what we want to see, and that aren't always commensurate with the size and complexity of the firms they have become,” Hulme said.
“So we want to do something a bit more structured in that sense, and I do think it's right that we have a look at something here.”
In a letter to CEOs last week (October 7) the FCA said it would be checking the suitability and financial soundness of acquisitions.
The letter set out a series of expectations from firms when it comes to consolidation. This included notifying the FCA, ensuring the delivery of good outcomes; undertaking due diligence; and holding adequate financial resources at all times.
Advice gap
The FCA is also looking at ways to close the advice gap by carrying out a review into the advice guidance boundary.
Hulme told FT Adviser there would always be a place for 'full fat advice', but it was about finding additional things to hook onto the full advice process and get people on that “stepping stone journey”.
“There was an individual talking to me about learning to drive a car. If you want to learn how to drive a car and get the bug for driving, you don’t start with a Ferrari; you start with a smaller car,” he explained.
“You might only have that car for a small period. You might go on the quiet roads, but you eventually get the bug so that you then go ‘I really do want to drive faster. I feel confident I can drive faster. I want to have a Ferrari.’
"This is another way of setting out what we are trying to achieve.”
Hulme added that the profession and regulator needed to find a way to address the advice gap and that it was not “the exclusive preserve of one set of firms over another”.
