Wealth sector consolidation presents opportunity but strong standards required – FCA

The growth, consolidation, and use of technology seen in the wealth management industry are presenting opportunities, but firms must ensure they are matching this with strong standards, according to the Financial Conduct Authority (FCA).

FCA director of consumer investments, Lucy Castledine, stated that wealth managers needed clear governance and strong financial crime controls while providing fair value and effective support for clients, alongside the responsible use of technology.

The regulator’s Wealth Management Survey showed the firms it supervises manage almost £1trn of assets for 5.5 million retail clients.

The largest 10 firms by client numbers accounted for 89 per cent of clients in 2024/25, an increase of 19 percentage points from 2022/23.

More than two fifths (41 per cent) of firms surveyed were planning to acquire another firm, grow revenue, or increase their client base by more than 25 per cent over the next two years.

On the other hand, 18 per cent were considering winding down or selling part of their client base.

The FCA said that while consolidation can support efficiency, growth, stronger governance, and financial resilience, fast growth that is not managed effectively can create poor outcomes.

“As firms grow, governance, oversight and controls need to keep pace, so clients receive consistent outcomes,” the regulator said.

Around 29 per cent of wealth managers also offer financial advice, which the FCA said can help give clients a more joined-up service.

However, the regulator noted that outcomes remained mixed on fair value and whether the price a client pays was reasonable relative to the benefits of the product or service they receive.

The survey showed that 13 per cent of firms used in-house or third-party AI tools, rising to 45 per cent when including the firms that said they were considering using AI in the next 12 months.

“Technology and AI can help firms improve service, strengthen controls and reach consumers who may not currently get enough support,” the FCA said.

“Firms must use these tools responsibly and understand the risks.”

Over 92 per cent of firms were outsourcing part of their business, most commonly for technology, trade execution, assurance and oversight.

“Firms supervised by our wealth management portfolio support more than 5.5 million retail clients, manage almost £1trn of assets and are evolving quickly as they grow, specialise, consolidate and use more technology,” commented Castledine.

“This change brings opportunity. A stronger wealth management sector can support growth, build trust in investing and help more clients make better-informed decisions about their financial futures and get better outcomes.

“But growth must be matched by strong standards. Firms need clear governance, strong financial crime controls and they should provide fair value, effective support for clients as well as responsible use of technology, including AI.

“This report shares data and insights to help firms understand the market, compare their approach and raise standards.

“Our aim is to support a competitive, innovative and resilient wealth market where firms can grow responsibly, and clients receive clearer information, better support and good outcomes.”

Broadstone head of personal financial planning, Rob Hillock, added: “The FCA’s findings show how quickly consolidation is reshaping the wealth management market, with the largest firms now serving a much greater share of discretionary clients.

“Greater scale can support investment in technology, compliance and client service, but consolidation must ultimately translate into better outcomes for clients. As firms grow through acquisition, maintaining service quality will be critical to expanding in a sustainable and effective way.

“The real test will be whether larger platforms can use their scale to deliver a better, more consistent client experience without losing the personal service and responsiveness that many investors value.

“There is clearly room for improvement around fees, where firms need to ensure their charging structures are transparent and appropriate for clients with different portfolio sizes, particularly as larger wealth managers increasingly serve a broader range of customers.”

---