Advice firm consolidation – five things to think about: 2025 supervisory and enforcement risks for investment advisers

This is the third blog in a four-part series covering key supervisory and enforcement risks for investment advisers in 2025. 

The FCA has put the consolidation of advice firms under the microscope following its multi-firm review, announced in October 2024. This follows a recent market trend of consolidation of investment advice firms through acquisitions or asset combination. 

Consolidation brings many regulatory risks. These go beyond issues that tend to feature in due diligence performed pre-consolidation or ensuring the adequacy of financial resources.

The FCA is clear that, in the context of consolidation, it expects firms to implement “the correct controls and governance”. Indeed, Nick Hulme, Head of Department for Advisers, Wealth and Pensions at the FCA, stated at a conference in May 2025 that “prompt and assertive” action would be taken where there is potential for consumer harm, in particular, “where consolidation takes place without direct control to governance or a focus on good client outcomes..”

Warning shots like this, if ignored, are fertile ground for FCA supervisory interaction and potential intervention. The latter may come in the form of the imposition of variations to or restrictions on permissions until the remediation of any issues.

So it is important to think about what, if any, changes are needed to the firm’s operations as a result of consolidation. It is also important to reassess regularly whether existing frameworks remain appropriate.

The FCA has pointed to previous guidance[1] it has issued to help firms navigate this process, however, this is only half of the story. Firms will also need to consider their post-consolidation operations in the context of the post-Consumer Duty world in which they operate.

Below are five key issues for consolidated firms to think about.

Five things to think about

Business alignment

At the point of consolidation, customers may not be clear as to the terms on which they will be advised going forward. The FCA has mentioned “poor transfer experience” as having the potential for harm to customers. So it is important to consider Consumer Duty obligations relating to supporting consumers’ understanding here.

In practice, the first step will be to understand the previous terms that customers were on to ensure that advice services can be transferred to the consolidated firm. If possible to do so, the consolidated firm will need to give details to customers about who is responsible for past or future advice, the services they will be offered, the associated level of charges, what changes might be made to previous arrangements, how they might complain and how they can opt out of ongoing advice services. 

Systems and controls

First and second line systems and controls require integration whilst ensuring that the firm is acting to deliver good outcomes for customers going forward, and that the firm’s processes are robust.

For the first line, this may involve processes being implemented to ensure that customers receive the service levels to which they signed up. For example, what, if any, system will the consolidated firm employ to track and schedule annual reviews? 

For the second line, how will the consolidated firm’s compliance processes deal with new and existing customers? For example, are AML and financial crime systems and controls robust enough to deal with an increased volume of customers, including where those customers potentially hold different characteristics? Separately, advice checking processes may also require alignment to ensure that the firm can satisfy itself that advice provided to clients is suitable, including ensuring that the firm is acting to deliver good outcomes for the customer.

Where necessary, firms may need to increase resources to relevant business areas or functions to cope with additional demands.

Governance

Due to the change in firm structure, the consolidated firm will need to consider whether previous governance arrangements remain appropriate. The key question is whether the relevant governance fora can retain adequate oversight of their relevant area to mitigate risks relating to the provision of advice. 

Changes may need to be made to the frequency of a governance forum’s meetings, the individuals attending and the contents of the management information it receives (both from a qualitative and quantitative perspective). 

This governance may extend to including sections in the annual Consumer Duty Board report on the monitoring of outcomes for transferred customers.

Fee structures

In line with the ‘Four Outcomes’ under the Consumer Duty, the consolidated firm will need to ensure that all its products are providing fair value to its customers, as assessed according to a centrally agreed framework. The Duty gives firms the flexibility to design their own assessment templates and consolidated firms will need to assess all products, legacy and new, against the same set of standards going forward. This may require an initial assessment at the point of consolidation to establish a baseline – and keeping this under review going forward.

Culture

A tricky issue for firms to grapple with is how to ensure consistency of culture within the consolidated firm – and making sure it is a culture that is going to promote the firm’s compliance with its Consumer Duty obligations. This will come down to how the firm’s leadership (both at the top and middle management) reflect and embed the Consumer Duty in the consolidated firm’s strategy and day-to-day client management. Areas to consider include:

• Staff policies and training will be important to give direction on how staff should engage with customers. Setting clear expectations for frontline staff about ‘the way things are done’ in the consolidated firm reduces the likelihood that staff carry over approaches from legacy firms and generates consistency.
• The FCA is keen to see staff appraised and rewarded according to the extent to which they put customers at the heart of the way they do business. 
• Managing adviser remuneration will also be critical to ensuring no conflicts of interest arise that could cause the adviser to profit at the expense of risking providing unsuitable advice to the customer.

[1]   Supervision review report: Acquiring clients from other firms and Finalised Guidance: Assessing suitability: Replacement business and centralised investment propositions.