Britain has lost 435 financial advice firms since 2022

A Freedom of Information request to the FCA, submitted by FT Adviser, revealed the number of firms authorised to provide retail investment advice has fallen from 6,240 in August 2022 to 5,805 as at February 2024.

This means 435 firms have disappeared from Britain, and represents a drop of 7 per cent in as little as 18 months.

Darren Cooke, chartered financial planner at Red Circle Financial Planning, described this as “quite a reduction".

It seemed that consolidation was the explanation for this drop in firms, with figures from M&A specialist IMAS stating a rise in consolidation. 

The January report said "M&A volumes in the investment sector picked up where they left off in 2023 with continuing high levels of activity in the wealth management sector."

It highlighted several high-profile acquisitions, including:

• Söderberg & Partners buying minority stakes in three firms: Bath-based Fidelius with £2bn of client assets; London-based Vintage Wealth Management with £1.1bn of client assets; and Croydon-based PK Financial with £150m of client assets
• Finli Group, formerly known as Solomon Capital Holdings, acquiring Glasgow-based IFA Clark Gillone, adding £815m of client assets
• Prosperis buying Newcastle-based IFA Stephen McDine, adding £450m of client assets.

But Cooke questioned whether such consolidation activity was a good thing for both advisers and their clients.

He said: “An awful lot of money is going to get sucked out of the profession over the next few years to service the debt to those PE firms and that is only coming from one place: clients' pockets.”

Likewise, Mark Ormston, director of propositions and corporate partnerships at Retirement Line, said the figures felt reflective of the amount of consolidation happening in the advisory market. 

He added: “Naturally, there are many reasons why someone might consider selling their business or retiring from the industry. 

“With this said, it feels fair to say, based on conversations I have had with some advisers in recent years, changes in regulations may have aided their decision to sell or retire. However, this decision is very much down to each individual's feelings and circumstances.”

It does suggest that a good number of advisers are continuing to choose to operate under a network or a larger firmSteve Gazard, Quilter

Elsewhere, Simon Harrington, head of public affairs at Pimfa, said he believed the driver behind the drop in numbers could have been the Covid pandemic.

“Clearly, it is disappointing that the number of directly authorised firms has fallen over the last two years,” he said.

“In the main, we consider that the primary driver here is firms closing as a direct result of the lingering effects of the Covid-19 pandemic, either through direct sale or broader consolidation. 

“In this context, it is also important to note that the average age of financial advisers in the UK remains high, and, as a result, some turnover is expected.”

Shifts in advice

Steve Gazard, chief distribution officer at Quilter, said the figures reflect the consistent shifts that take place in the financial advice landscape, which are driven by factors such as regulation, technology, consumer demand, and market conditions.

He added that the numbers only tell part of the story because  networks count as a single firm and appointed reps do not show up in adviser firm numbers.

“It does suggest that a good number of advisers are continuing to choose to operate under a network or a larger firm, rather than being directly authorised which is consistent with what we are witnessing,” said Gazard.

“This may be due to the benefits of scale, support, and compliance that networks and larger firms can offer. 

“It’s also well documented that it has become harder for small firms to keep up with PI premiums, compliance and tech spend which can put pressure on the profitability of smaller firms.”

Reason for concern?

While the number of firms have fallen the number of retail investment advisers has stayed static at 31,182, up slightly from 31,144 18 months prior.

This suggests that firm numbers falling should not have an impact on the advice gap as there are still enough advisers for people to talk to.

Cooke said: “I can't see how it affects the advice gap. That will depend on how those larger firms behave. 

“Will they raise minimum levels of wealth they advise on or use their size to introduce services for lower value clients? Either way they have to drive profits to cover those costs of purchasing businesses and paying back the PE backers.”

Bringing in the next generation of talent and skills to our industry is importantSimon Harrington, Pimfa

He added it may be that new firms are finding it harder to get authorised.

“When a firm gets sold some advisers there may not like the new owners and look to leave, previously they would have gone directly authorised,” he said. 

“That is now taking up to a year so many are joining networks instead just to get going. The number of advisers remains static though, so there are just as many advisers to go around.”

Harrington said while a drop of nearly 500 firms is noteworthy, it is not a cause for alarm.

“The number of advisers in the UK remains stable, and the number of directly authorised firms remains higher than it was even before the introduction of the RDR,” he said.

“Bringing in the next generation of talent and skills to our industry is important, and something Pimfa and our members are actively championing through various initiatives. It is also important to note that traditionally, the number of AR firms in the market has led to a stable 60:40 split over the last decade or so.”

Ormston also found comfort in the fact the number of advisers in the industry has remained consistent. 

“There has been talk for some time that the advice industry is filled by people in the second half of their careers,” he said. “I hope these figures may indicate we have younger professionals joining the industry.

"Financial advisers offer an incredibly valuable service which I hope is seen as appealing to young people at the beginning of their careers.”

amy.austin@ft.com