FCA review of consolidation in financial advice & wealth management

On 31 October 2025, the Financial Conduct Authority (FCA) published the findings of its multi-firm review into consolidation in the financial advice and wealth management sector. The review provides valuable insight into the FCA's expectations for firms pursuing growth through acquisition, highlighting both good practice and areas of increased risk. This update summarises the FCA's key findings, sets out practical takeaways for firms, and outlines how we can support you in navigating this evolving landscape.

Background

The FCA's review was prompted by a marked increase in consolidation activity in the advice and wealth management sector, with groups acquiring independent financial advisers (IFAs) and wealth management businesses. While consolidation can drive and support efficiency, innovation, resilience and succession planning, the FCA warns that poorly managed growth may result in poor client outcomes, business continuity failures, and disorderly firm failures. The review is intended to support sustainable growth and remind firms of existing regulatory expectations, rather than introduce new requirements.

Next steps for firms

Firms should benchmark their current arrangements against the FCA's findings, considering the nature, scale, and complexity of their business. Where gaps are identified, prompt action should be taken to strengthen risk management, governance, and compliance arrangements, in line with the Consumer Duty and in the best interests of clients and market integrity. This should be done both in relation to integration of past transactions and plans for current and future transactions, and a record of the assessment should be retained so that you can evidence the firm taking action in light of the FCA Review.

The FCA's review makes one point unmistakably clear: the success of transactions in this sector hinges on understanding the regulatory landscape from structuring, due diligence and change-of-control approvals to post-completion integration and Consumer Duty alignment. Our leading Corporate M&A and Financial Services Regulatory teams, working with sector specialists across the Firm, are uniquely placed, advising clients on all aspects of consolidation, acquisition, post-deal integration  and day to day matters across the financial advice and wealth management sector. We can support you by:

• Conducting regulatory due diligence and risk assessments pre- and post-acquisition, including in respect of potential back-book advice liabilities.
• Advising on group structure, prudential consolidation, and ICARA requirements.
• Structuring the transaction to accommodate the FCA change-of-control process (and balance associated risks and interim-period obligations)  provide for FCA compliant consideration mechanisms that achieve the right commercial and client outcomes and build in post-deal integration.
• Supporting with change in control applications and engagement with the FCA.
• Reviewing your governance, risk management, and compliance frameworks and practices to recommend enhancements to meet the FCA's desire for "strong" processes.
• Providing training for senior management and staff on regulatory expectations and best practice, particularly in fast growing businesses.
• Advising on incentive arrangements and the application of remuneration codes.
• Reviewing your management information to ensure that it is designed to monitor the right risks as both a granular and sufficiently holistic level, and for it to be actionable.

Regulatory risk does not end on completion; post-completion integration is not only where many deals either succeed or fail, but also where regulatory risk can be the greatest. The strength of our practice providing ongoing advice to wealth managers, IFAs and investment managers and across the wider financial services ecosystem feeds into our approach to transactions in the sector and enables us to foresee and support clients on post-transaction requirements.

Summary of key findings

Good practice

• Having a clear structure, strong governance and risk management processes is likely to lead to more sustainable growth for firms and better outcomes for clients.
• Firms must ensure regulated entities are prioritised within a group in terms of resources and resilience.
• Risks should be considered across all group entities, including capital and liquidity needs triggered by those risks.

Poor practice

• Not prudentially consolidating a group - this can lead to difficulties recognising, measuring or mitigating group risk.
• Not protecting regulated entities in terms of group debt arrangements, exposing them to the group's financial and operational risks.
• Compliance and governance infrastructure not keeping up with rapid growth.

Key takeaways for firms

1. Group debt management

• Good practice:

  • Close monitoring of group debt and its impact, with regular board-level review and early warning indicators.
  • Ensuring regulated entities are well-resourced and resilient, regardless of group debt levels.
  • Avoiding arrangements where regulated entities inappropriately guarantee or secure group-level debt,  to ensure client interests are protected.

• Areas for improvement:

  • Over-reliance on intangible assets, such as goodwill, for balance sheet solvency.
  • Over-reliance on short-term debt and lack of robust stress testing.
  • Regulated entities guaranteeing holding company debt or having charges over their assets, exposing them to group credit risk.
  • Heavy reliance on cash generation from regulated entities to service group debt, without adequate contingency planning/stress testing.

2. Group risk management

• Good practice:

  • Explicit consideration of risks across all group entities, including those outside investment firm groups (IFGs), and capturing capital and liquidity needs in the Internal Capital and Risk Assessment (ICARA).
  • Prompt deauthorisation of dormant firms and prioritisation of client interests.

• Areas for improvement:

  • Inadequate recognition of group risk, particularly interconnected risks and resource needs. The requirement to consider group risk in the ICARA process is not limited to entities in an IFG (MIFIDPRU 7.9.3G).

3. Group structure and approach to consolidation

The parent undertakings of IFGs must ensure a minimum amount of capital and liquidity at the consolidated level.

• Good practice:

  • Inclusion of connected entities within an IFG to support effective governance and regulatory oversight.

• Areas for improvement:

  • Use of offshore or dual-parent structures to limit prudential consolidation, undermining financial resilience and regulatory oversight.
  • Holding goodwill outside the IFG, which can mask the true financial position.

4. Acquisition and integration approach

• Good practice:

  • Rigorous, well-challenged due diligence, including effective risk identification and assessment of cultural fit.
  • Clear, disciplined integration plans with well-resourced teams and ongoing monitoring of client outcomes.
  • A clear and well documented acquisition strategy , including defined commercial, cultural and client acquisition targets.
  • An adaptive approach to acquisitions and integration  tailored to the profile of the target firm / business.

• Areas for improvement:

  • Superficial or 'tick box' due diligence, not sufficiently tailored to the target, and failure to address pre-existing compliance issues promptly.
  • Failure to quickly address issues  with resulting need for substantial investment in improving risk and compliance frameworks.
  • Issues with the structure of consideration in relation to conflict management (see point 6 below).

5. Governance and resourcing

• Good practice:

  • Investment in staff training, robust product governance, and ensuring senior leadership has the skills and experience to manage increased complexity.
  • Strong acquisition and integration processes, supported by robust systems and controls.

• Areas for improvement:

  • Failure to scale systems and controls in line with growth.
  • Insufficient leadership experience and independent challenge at board and committee level.
  • Key decisions affecting regulated firms being made by unregulated boards without adequate consideration of the impact on the regulated firm's business.

6. Conflicts management

• Good practice:

  • No incentives for advisers or sellers based on client investment decisions.
  • Broad range of investment options and robust compliance monitoring to manage conflicts.
  • Onboarding assessments to ensure investment suitability.

• Areas for improvement:

  • Explicit or implicit incentives to invest in group products or services, including investment products; including where sellers are incentivised to achieve certain client decisions through the transaction structure.
  • Under-developed or unclear conflict mitigation strategies.

The FCA's review should be seen as a call for better-informed dealmaking, ensuring regulatory expectations are provided for at every stage of transactions. Acquisitive groups that approach M&A through a regulatory lens will be best placed to maximise deal value and deliver sustainable and regulatory compliant growth for both clients, and investors. It is also a  useful reminder of the importance of adopting a tailored and informed approach to understanding the  approach of the FCA and the particularities of the target. However and crucially, the FCA's conclusions have always been applicable to transactions in this sector and are  all matters where we have already been successfully supporting clients, so this needn't be taken as a call to reduce M&A activity in the sector. Indeed, we expect activity to continue to be strong, certainly over the short medium term.