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On 31 October 2025, the Financial Conduct Authority (FCA) published the outcome of a multi-firm review into consolidation across the financial advice and wealth management sector.
The FCA examined a sample of groups acquiring independent financial advisers and established wealth managers providing discretionary investment management and advice solutions. Its assessment focused on how firms manage debt structures, group risk, prudential consolidation, acquisition and integration processes, governance and resourcing, and conflicts of interest, both during and after acquisitions. The FCA's objective is not to set new expectations, but to help firms understand and apply existing ones in support of resilient, well‑managed growth and good client outcomes.
The FCA recognised consolidation can support efficiency and growth by pooling resources, expertise and infrastructure, and can enable stronger governance, long‑term innovation and enhanced financial resilience. However, rapid, poorly managed expansion can lead to harm, including degraded client service, weakened business continuity and disorderly failure. The FCA found a mixture of good practice and practices that could increase harm.
Who is this relevant to?
The report will be of relevance to private equity firms investing in this sector. The IFA and wealth management sectors have been of increasing interest to PE firms over recent years and the report highlights important issues which should be considered during the diligence and ongoing integration phases.
The findings
| Issue | FCA Expectation | Good Practices | Weak Practices |
|---|---|---|---|
| Group Debt | The FCA expects acquisition‑led growth to be financed on a sustainable basis and for groups to avoid funding structures that transmit lender credit risk into regulated entities or subordinate client interests. Boards should maintain credible term funding and oversee rigorous monitoring, stress testing and contingency planning. Guarantees or charges over regulated entities' assets should not be used, and regulated firms should remain financially resilient on a standalone basis notwithstanding group‑level debt. | Stronger firms maintained regular, decision‑useful board‑level monitoring of leverage, supported by clear early‑warning indicators, and structured financing so that regulated entities were adequately resourced in their own right. Where security existed at the lender's request, it was limited to pledges over shares in regulated subsidiaries, without guarantees or asset‑level charges at the regulated entity. These arrangements reduced transmission of group credit risk into the regulated perimeter and preserved client protections. | Weaker cases exhibited double leverage, reliance on short‑term refinancing and structures in which regulated entities guaranteed holding‑company debt or charged their own assets. Solvency was sometimes sustained by goodwill and other intangibles, while intra‑group receivables accumulated that were unlikely to be realised in stress. Stress testing and contingency planning were under‑developed, and cashflows from regulated entities were relied upon to service group debt, increasing the risk of harm if cash generation faltered. |
| Group Risk Management | The FCA expects firms to identify and manage risks arising across all legal entities in the wider group, including those outside any investment firm group. Material harms from group membership should be assessed and quantified within ICARA, with capital and liquidity maintained to mitigate them. Oversight of shared clients, revenue dependencies and control frameworks should be consistent across entities to reduce the risk of disorderly failure and to support the assessment of threshold conditions. | Effective groups explicitly considered risks across all entities, including those outside the consolidated perimeter, and reflected those risks coherently within ICARA. Dormant entities were de‑authorised promptly; potential future liabilities were retained within the group; and client interests were prioritised in group decision‑making. Oversight across subsidiaries and service entities was coherent and consistent, enabling timely identification and mitigation of emerging group risks. | Some groups failed to recognise the breadth and interconnection of group risks, underestimating dependencies and resource needs. In such cases, ICARA did not capture risks beyond the investment firm group, resulting in inadequate assessment of additional capital, liquidity and operational resources needed to support resilient operations. |
| Group structure and prudential consolidation | Apply prudential consolidation to connected financial undertakings below the top UK parent to ensure visibility of risks and minimum consolidated capital and liquidity. Appropriately deduct goodwill given its limited realisable value in stress. Do not use structures to frustrate consolidation where businesses are highly integrated. | Better outcomes were observed where connected entities were included within a single consolidated investment firm group, supported by group level governance and oversight. Capital and liquidity were managed on a consolidated basis, and goodwill was recognised and deducted appropriately within the consolidation calculations, improving supervisory visibility and mitigating the risk of disorderly failure. | The FCA identified dual‑parent and offshore arrangements that limited prudential consolidation despite high operational integration and common client bases. In some cases, goodwill was held outside the consolidated perimeter. These arrangements reduced supervisory visibility, undermined financial resilience and increased the risk of harm to clients and markets. |
| Acquisition and integration | Acquirers are expected to perform rigorous, challengeable due diligence that covers compliance exposures and back‑book advice liabilities, and to execute disciplined, well‑resourced integration tailored to the target's client, staff and service profile. Throughout integration, firms should monitor client outcomes and evidence Consumer Duty considerations, addressing issues promptly where identified. | Strong performers engaged third‑party support to test and evidence due diligence and ensured findings were understood and challenged by decision‑makers. Integration was governed by clear plans with accountable milestones and adequate resourcing. Firms assessed cultural fit and adapted processes to the target's profile to protect service quality, while maintaining ongoing monitoring of client outcomes and documenting remediation where required. | In weaker cases, due diligence was "tick‑box" in nature and missed basic compliance issues, monitoring and resourcing during integration were inadequate, and remediation was slow, requiring significant additional investment. These weaknesses elevated risks for clients and the acquiring group and delayed the realisation of intended benefits. |
| Governance and resourcing | Systems, controls and risk and compliance resourcing should scale with growth. Leadership capability must match the group's increasing size and complexity, and independent challenge should be maintained at board and committee level. Management information should be decision‑grade and sufficient to oversee multiple entities and infrastructures effectively. | Firms invested in staff training, including for systems migration, and operated robust product testing within effective product governance frameworks. Leadership capability was strengthened through development and targeted recruitment. Acquisition and integration processes were clearly documented and supported by robust systems and controls that produced useful management information, which senior management reviewed and acted upon. | Some groups did not scale systems and controls in line with growth, and management information was inadequate for multi‑entity oversight, resulting in poorly controlled expansion. In places, material decisions affecting regulated firms were taken by unregulated boards without sufficient regard to regulated obligations, and independent challenge at boards and key committees was limited. |
| Conflicts management | Firms should identify and manage conflicts of interest, particularly in vertically integrated models, and avoid incentives that steer clients towards group products. Clients should be offered genuine product choice, suitability assessments should be robust, and compliance monitoring should be effective in identifying and addressing conflicts. | Stronger firms removed incentives linked to client investment decisions, offered a broad range of investment options and embedded robust onboarding suitability assessments. Compliance monitoring operated effectively to identify and manage actual or potential conflicts in a timely manner, particularly where internally manufactured products were available. | The FCA observed explicit and implicit incentives to place clients into group products or services, together with conflicts registers that recognised issues without clear or effective mitigations. Control design and monitoring frameworks were under‑developed, creating a heightened risk of conflicted distribution and unsuitable outcomes. |
Next steps
- Benchmark and adjust: Firms should compare their arrangements to the FCA's findings and address prudential and conduct risk hotspots, documenting decisions and timelines for remediation.
- Strengthen prudential resilience: Enhance debt governance and stress testing, avoid guarantees and security over regulated entities, capture group risks comprehensively within ICARA, and ensure appropriate prudential consolidation of connected undertakings.
- Scale governance and integration: Match governance and resourcing to growth and improve due diligence and integration discipline. Ensure alignment and compliance with the Consumer Duty.
- Exit readiness: Prepare for timely change‑in‑control processes by addressing identified gaps in advance.
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