Will COFI Force IFAs to Consolidate? Separating Myth from Reality

There is a perception that independent financial advisors (IFAs) will need to merge with larger institutions to survive under the proposed Conduct of Financial Institutions (COFI) Bill. However, a closer look at the Bill and the Financial Sector Conduct Authority’s (FSCA) roadmap tells a different story. Independence remains viable – provided that advisors prepare appropriately.

A persistent concern surrounding the COFI Bill is that IFAs will be forced to consolidate with larger financial services providers (FSPs) to remain compliant. Although this anxiety is understandable given the scale of regulatory change and the uncertainty it creates, IFAs should not act in haste by restructuring or merging purely out of regulatory fear.

COFI does not require – nor does it encourage – consolidation. In this article, we unpack the reasons behind this perception, why merging is not always necessary and how IFAs can maintain and strengthen their practice and prepare with confidence.

Why does this perception exist?
In discussions with IFAs, the concern appears to stem largely from uncertainty rather than regulatory intent. The perception generally arises from three key areas.

1. Focus on technology, governance and data: COFI places stronger emphasis on governance, monitoring and the ability to evidence fair customer outcomes. This has created the impression that sophisticated systems and extensive infrastructure will be required. However, the Bill is built on the principle of proportionality, meaning compliance expectations must be appropriate to the nature, size and complexity of the institution. Smaller FSPs are not expected to implement controls designed for large, complex organisations.
2. Uncertainty about future licensing: COFI shifts from product-category licensing to activity-based licensing. Because the final licensing framework has not yet been issued, some IFAs are unsure how their current Financial Advisory and Intermediary Services Act (FAIS) licences will translate under COFI. That uncertainty has led to speculation about structural changes, including mergers, even though there is no indication that independence is incompatible with the new structure. While firms operating in private equity or venture capital environments may face more defined licensing and conduct requirements under COFI, and existing FAIS entities will have to shift to COFI, this does not translate into a broader expectation that IFAs must consolidate.
3. Limited practical guidance at this stage: While the Bill is progressing through the legislative process, no fixed commencement date has been confirmed. Although implementation planning is progressing, the details are still being finalised. The FSCA has indicated that implementation will include a transitional period, expected to be around three years, during which financial institutions will move from the existing framework to the COFI regime. In short, COFI will not take effect overnight, and there is time for IFAs to prepare in a measured and proportionate way.

How IFAs can prepare
Rather than viewing COFI as a trigger for consolidation, IFAs should start with a structured assessment of their current position. The preparation and transition periods provide an opportunity to strengthen operations and governance rather than simply react to regulatory change prematurely.

First, work closely with your Compliance Officer to unpack the underlying COFI themes and understand which parts of the Bill apply to your specific business model. Your Compliance Officer can help you identify high-impact areas early, map requirements to existing controls and provide clarity on what is already in place. This structured approach reduces uncertainty and prevents unnecessary stress.

As part of this process, work through COFI themes chapter by chapter – for example, Chapter 3 (Culture and Governance) – and compare them to how your business currently operates. Mapping COFI expectations to existing processes helps to identify what is already compliant, what needs refinement and where additional evidence may be required. This proactive approach avoids last-minute pressure once COFI becomes law.

Much of COFI builds on principles already embedded in existing legislation, such as the Financial Advisory and Intermediary Services Act (FAIS), the General Code of Conduct (GCOC), relevant Board Notices, the Insurance Act and the Policyholder Protection Rules. In many cases, the core foundations are already in place, meaning preparation often involves refinement rather than wholesale change.

Next, begin preparing for activity-based licensing by clearly identifying the activities that your practice performs. Existing licences will continue during the transition, but early awareness will make future mapping more straightforward.

Importantly, start applying COFI concepts even before the final detail is published. COFI is centred on principles the industry already knows: fair treatment of customers, transparency, data-driven decision-making and evidence of good outcomes. You do not need final conduct standards to strengthen these areas.

For most IFAs, the key area to strengthen will be the ability to evidence fair customer outcomes. This does not require expensive systems – it requires clear documentation, consistent record-keeping, well-documented advice rationales and demonstrable governance.

Before considering consolidation, conduct a proper compliance gap analysis. Many perceived weaknesses can be addressed internally through clearer processes, defined responsibilities and improved data capture. A merger should be a strategic business decision – not a response to regulatory uncertainty.

The opportunity within COFI
COFI presents meaningful opportunities for well-run IFAs. Because the framework emphasises governance, transparency and evidence-based outcomes, IFAs who already operate with discipline and customer-centricity are well positioned. Professionalism, structured processes and fair treatment of customers can become measurable differentiators.

Insurers and distribution partners are increasingly seeking firms that can demonstrate reliable data, clear governance and consistent conduct standards. Independent advisors who can evidence good outcomes may find that COFI strengthens their credibility and market position.

It’s also important for IFAs to remember that once COFI becomes law, it won’t be implemented overnight. The proposed three-year transition period provides IFAs with time to further refine governance, strengthen culture and build confidence in their business model.

COFI does not force advisors to merge. With proportionate preparation and a clear understanding of the framework, independence remains both viable and valuable.