Towry Law, the financial advisory group, has acquired Edward Jones, its rival, in a transformative deal that is likely to prompt more mergers in the financial advisory sector.

The combined business, which will trade under the Towry Law brand, will have 500 advisers and $4 billion under management, putting it in the top five UK financial advisers by number of advisers.

Neither side would comment on how much Towry has paid for Edward Jones, which is the UK division of Edward Jones Limited, a large American and Canadian financial adviser that will withdraw from the British market.

The deal is the latest in a series of mergers and acquisitions in the sector, which is experiencing huge change in response to the recession and regulatory changes that take effect next year. Towry Law’s takeover of Edward Jones is also regarded within the industry as another nail in the coffin for the old-fashioned system of financial advisers earning commission from clients based on the number and value of products sold.

Towry Law has set itself up as the champion of a newer, more transparent form of financial advice, in which advisers are paid a fixed fee, regardless of whether a client makes any investments, and do not earn commission.

Andrew Fisher, chief executive of Towry Law, said that Edward Jones, which previously charged commission on some products, would operate on a fee-only basis once the deal was complete.

The Financial Services Authority has all but killed off the older-style commission framework with its Retail Distribution Review (RDR), designed to clean up the financial advice industry. Although the RDR does not ban commission payments outright, it severely limits the ways in which advisers can operate. At the same time, the regulator has spoken out in favour of fee-only arrangements of the kind championed by Towry Law.

Danny Cox, head of advice at Hargreaves Lansdown, the quoted investment adviser, said that the RDR also placed tighter capital adequacy requirements on advisers, which in turn was encouraging mergers. “We are already in a wave of consolidation in the financial advice industry and I expect this to intensify as we approach the introduction of the new rules in 2010,” he said.

Jonathan Fry, from Fry Family Office, a wealth manager, said many financial advisers that operated on commission fees would continue to trade until 2010 and then would sell to larger groups rather than deal with the new requirements, putting more businesses on the block.

Analysts expect consolidation at all levels in the industry. Ernst & Young, the accountancy firm, said in a recent report that the regulatory changes would lead to fewer financial advisers in the UK. McKinsey, the consultants, predicted that wealth management businesses with up to £3 billion under management were likely to be courted by bigger players.

Mr Fisher said that Towry’s latest deal had been struck in the context of wider changes in his industry. The acquisition of Edward Jones provides the opportunity for the combined business to become the major force in independent wealth advice in the UK,” he said. “It will be well placed to continue to lead the industry in the adoption of the new rules following the RDR.”

Edward Jones wrote to its clients to say that Towry Law shared its approach of “delivering quality face-to-face advice” and said that nothing would change.

The deal is Towry Law’s third big acquisition in two years.

Although consolidation is expected within the industry, some expressed surprise that Edward Jones was willing to sell. In February the firm had said that it was looking to expand its UK operations, which represent only 1 per cent of its global business.

Sources close to Edward Jones said that the exit from the UK was part of a broader strategy to concentrate on its main businesses in North America and was not related to the RDR.

Edward Jones, which set up in the UK in 1998, lost £35 million in the year to December 31, 2008.

The acquisition is subject to regulatory approval.

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