The financial regulator has warned 4,000 firms in the financial services sector are at "heightened risk" of failing as a result of the coronavirus crisis.
In its most detailed financial snapshot of the market published since the pandemic began the Financial Conduct Authority said almost a third of these firms could potentially cause harm to consumers should they collapse.
Within the retail investment market, which includes advisers, self-invested personal pension operators and platforms, 3,414 firms predicted the crisis would have a negative impact on income.
The advice sector had one of the highest proportion of firms expecting a drop in income, equating to 66 per cent of the 5,159 firms which responded to the FCA's data request.
But the impact on income was largely predicted to be minimal, with 2,973 of the firms in the retail investment market which predicted a drop estimating the reduction would sit between 1 and 25 per cent and only 26 firms saying income might plummet by more than 76 per cent.
The FCA sent its financial resilience survey to 13,000 firms in the wider financial services in June and to a further 10,000 firms in August.
Sheldon Mills, executive director of consumers and competition, warned the situation was "unprecedented and rapidly evolving".
Mr Mills said: "At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve.
"These are predominantly small and medium sized firms and approximately 30 per cent have the potential to cause harm in failure.
"Our role isn’t to prevent firms failing. But where they do, we work to ensure this happens in an orderly way."
Light at the end of the tunnel for advisers
The FCA probed the 23,000 firms across the sector on how profitability had fared throughout the crisis, with the results hinting at a positive outlook for retail investment firms.
In February, before the coronavirus pandemic hit, 76 per cent of firms in the financial services industry recorded a profit and 22 per cent of firms were unprofitable. This had reversed slightly by the summer, when 74 per cent of firms recorded a profit and 24 per cent found themselves unprofitable.
|Insurance Intermediaries & Brokers - February||69||2,514||787|
|Insurance Intermediaries & Brokers - Latest||77||2,593||700|
|Investment Management - February||16||1,432||588|
|Investment Management - Latest||13||1,466||557|
|Payments & E-Money - February||26||352||337|
|Payments & E-Money - Latest||26||286||403|
|Retail Investments - February||60||4,416||683|
|Retail Investments - Latest||65||4,473||621|
|Retail Lending - February||210||3,752||1,014|
|Retail Lending - Latest||206||3,275||1,495|
|Wholesale Financial Markets - February||7||527||319|
|Wholesale Financial Markets - Latest||5||547||301|
Source: Financial Conduct Authority
But the advice sector bucked this trend, with the number of businesses making a profit actually increasing throughout the year.
Of those in the retail investment sector which responded to the FCA in June, 4,473 firms were profitable - up from 4,416 firms in February. And likewise, the number of businesses making a loss in this sector dropped from 683 to 621 in the same period.
The data seems to support the sentiment of the advice sector itself in recent months, with recent research from the Lang Cat suggesting the majority of advisers felt their businesses were in good shape with a positive outlook on the future.