Nic Cicutti: FCA consolidation review is too little too late

What are we to make of the news the Financial Conduct Authority is to review consolidation in the advice market?

The regulator has written to advice and investment firm bosses noting an increase in the acquisition of firms or their assets over the past two years.

It warned that, while industry consolidation can provide benefits, various types of harm can occur where this is not done in a ‘prudent manner’ with effective controls to promote good outcomes.

The FCA says: “Where we receive notifications from individuals or firms to acquire or increase control in regulated firms, we will assess and challenge their suitability and the financial soundness of the acquisition.”

For the FCA to step in now seems a spectacular example of shutting the stable door after multiple horses have bolted

I think it’s a case of too little too late.

Back in November 2021, Money Marketing’s Lois Vallely penned a useful guide to consolidation in which she noted how its origins date back to the 1980s and 1990s heyday of DBS and M&E Network, which then bought Interdependence in 1999 to bring it under the Tenet umbrella.

In the early noughties, we also had Millfield, Berkeley Berry Birch and Inter-Alliance, several of them engaging in failed mergers with each other. None of these firms now exist in their present form, with shareholders – both individual and corporate – having taken a massive loss on their investments.

Undeterred by these exercises in value destruction, in 2005 Standard Life bought a 20% stake in the Tenet Group network. Tenet’s other shareholders – Norwich Union, Friends Provident and Aegon – each increased their stakes to around 20% in light of the deal.

Quite how anyone could have been remotely surprised by what had been screamingly obvious for years is anyone’s guess. Hundreds of ARs had exited Tenet in the years before it went under

As we know, earlier this year, Tenet went into administration. Its remaining 170-odd advice firms, numbering barely 350 authorised representatives (ARs), were offered the option of transferring to Openwork.

News that Tenet had called in the administrators was described in one story I read at the time as “shocking” – although quite how anyone could have been remotely surprised by what had been screamingly obvious for years is anyone’s guess. Hundreds of ARs had exited Tenet in the five years before it went under.

Even Tenet’s own review found the AR sector was subject to “significant change” from “external forces such as consolidation, increased regulation, digitisation, new technology expense and the broader inflationary environment”.

ARs themselves, meanwhile, will continue to be treated as disposable pawns on the financial advice chessboard

What these stories tell us is that providers and consolidators will always seek to buy or control product distribution or assets under management. Providers will repeatedly invest in the endlessly-failing dreams of senior executives at consolidators who tell them, yet again, things will be different this time round.

ARs themselves, meanwhile, will continue to be treated as disposable pawns on the financial advice chessboard. They either survive yet another round of takeovers or drop out, missed by no one but their clients – who receive a letter to say the business name has changed, or their adviser has left, or both.

We’re then offered an appointment with someone we didn’t choose to go to in the first place, providing a different service we didn’t ask for.

We put up with it because that’s just how it works

It happened to me 20 years ago. It’s happened to several of my friends, who are among many hundreds of thousands of clients with the same experience. And we put up with it because that’s just how it works.

For the FCA to step in now seems a spectacular example of shutting the stable door after multiple horses have bolted.

At this rate, I’m expecting the regulator to send out stern letters to chief executives saying it is determined to stamp out misselling of mortgage endowments and personal pensions. I can’t wait.

Nic Cicutti can be contacted at nic@inspiredmoney.co.uk