Consolidation may test the FSA's limits

It seems that Tony Cornell was tempting fate when his consultancy released its annual retail commercial market review, which said that no top 50 broker had been acquired between January 2005 and January 2006 - because, within days of the announcement, Jelf had swooped for Goss. Granted, this type of deal is unusual by recent standards, being a merger of equals - of sorts - rather than the now-familiar scenario of huge consolidators circling for small to medium-sized provincial prey.

With Jelf's help, Goss has entered the top 10, which is in line with Cornell Consulting's prediction that increasingly fewer players would hold a greater control of power as time rolls on. But whether the Jelf/Goss tie-up will spark a trend is now a question in the minds of many, and it may yet prove to be a catalyst.

The fact that, within days of the deal, Jelf saw an uplift in share price nudging 20% (and climbing at the time of writing) will no doubt catch the attention of the Alchemies, 3is and Framlingtons of this world. As the few broking power-holders grow, the gains being made may well entice further venture and other types of capital into the market, thereby accelerating the consolidation of power to the top tier.

If consolidation activity on this scale does attract additional capital to the industry, this may also alter the fact that, in the main, the consolidators have been looking outside the top 250 for deals, as Cornell observed. It seems that, in this regulated era, parallels with the IFA market are becoming more relevant as firms are swallowed up by each other and networks.

However, one thing that may temper an exponential quickening of the rate of consolidation is the treatment of goodwill in 2008. But whether consolidation speeds up or not, the jury is out on whether ring-fencing bad debt into non-regulated holding companies will push the problem beyond the regulators' reach. One line of reasoning on this, as put forward by Oliver Laughton-Scott in this month's Broker Management Forum, is that the large players will do it precisely because the problem will be beyond the regulator. And if the large players can do it, the small ones can do it as well. After all, it is, we are told, a level playing-field.