The Financial Conduct Authority's planned review into consolidation will be a "wake up call" for buyers and sellers of advice firms.
Clive Gordon, consumer investments and financial crime practice lead at Sicsic Advisory, called the regulator's announcement big news.
He said: "It’s a wake up call for buyers to have rigorous due diligence in place to gain regulatory approval, and for sellers to get their houses in order with pre-sale due diligence.
"Acquiring firms must be prepared to show that they understand regulatory obligations, that good customer outcomes are central to their strategy and culture, and demonstrate that they will have adequate financial resources – especially where acquisitions include debt funding."
In a letter to CEOs today (October 7) the FCA said it would be checking the suitability and financial soundness of acquisitions.
Gordon advised smaller firms considering selling to prepare for a rigorous process and start early.
He said it was key for firms to be prepared to demonstrate how they are delivering good outcomes should the FCA come knocking.
Robert Lewis, co-founder of Celtic Financial Planning, took to LinkedIn to summarise the regulator's letter.
He said while consolidation can bring benefits there is the potential for transitions to negatively impact client outcomes.
Lewis said: "Many peers and I have voiced concerns about how acquisitions can lead to drastic changes in client management, sometimes prioritising profits over suitability.
"It’s crucial that transitions maintain a focus on the welfare of clients, not just the financial gains of the deal."
While Paul Fraser, a director in Deloitte’s risk advisory practice, said: "As expected, the FCA will continue to scrutinise firms providing retirement income advice as well as the delivery of ongoing advice services, following their deep dive review and information requests in the last year.
"The FCA’s key message is that firms must be prepared to show that client’s needs are at the heart of their business model, fair value is provided and that overall they are able to demonstrate good outcomes are delivered under the consumer duty."
FT Adviser readers also expressed concerns about consolidation in the market, with some blaming increased regulation for the trend.
One reader, Harry K, wrote: "With consolidation the clients will have to deal with a large firm and these generally never have the close client relationship and advisers are hardly there for the long haul.
"Most won't have bespoke services and just shoe horn clients into one of four or five model portfolios. That is assuming they actually have humans on the advisory panel and will not just rely on AI robots."
tara.o'connor@ft.com
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