The number of firms authorised to dispense financial advice has fallen for five consecutive quarters, FSA figures show.
There were 5,414 intermediary businesses in the UK last December, 170 fewer than in September 2008. Networks, such as Sesame, are counted as intermediary businesses.
IFA consolidators say the decline marks the beginning of a cycle that will see the industry shrink massively in the run up to the introduction of the FSA's Retail Distribution Review in 2012.
There have been predictions up to 40% of advisers will leave the industry over the next three years, put off by the increased costs, qualifications and compliance that the new regulations require.
Damian Keeling, managing director of Perspective Financial Group, says it is "entirely plausible" IFAs have started to seek an exit route as they "can see the writing on the wall".
He says: "We did some research about three years ago into the average age of an IFA and it was about 54 then. That means by 2012 the average age could be 60 and it is unlikely they will be interested in taking on the demands of the FSA."
Sheriar Bradbury, founder and managing director of Bradbury Hamilton, also highlights the immediate pressures of the FSA's TCF visits as a contributory factor.
"The sector in general is under-resourced, under-capitalised and can't afford to take the time out to make sure they meet all aspects of TCF policy, and yet there are heavy penalties for failure to do so."
Networks are not immune to the problems.
In the last quarter of 2009, 171 appointed representatives (ARs) shut their doors, leaving 9,314 in December 2009.
However, the number is still almost 30% higher than in January 2006 when there were 6,977 ARs.
Similarly, the number of directly authorised firms as of last December is also still higher than four years ago.
Bradbury puts this down to IFAs leaving established firms to set up new ones when the economy was buoyant.
"The collapse in fund-related revenues and a tricky economic climate going forward has halted, and most likely reversed, that trend."
Total directly-authorised firms providing financial advice:
- Dec 2009: 5,414
- Sep 2009: 5,432
- Jun 2009: 5,480
- Mar 2009: 5,501
- Dec 2008: 5,575
- Sep 2008: 5,584
- Jun 2008: 5,577
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