Reforms introduced this year on retail financial product sales have coincided with an overhaul of the entire regulatory infrastructure, with asset managers now answering to a newly-created watchdog, the Financial Conduct Authority.

But complying with the changes is proving expensive and higher running costs have already driven out of business many of small financial advisers that were once central to investment selling in the UK.

"Because those costs are constantly rising ... more and more you have to be a big player in order to be successful," said Ian Gorham, Chief Executive of FTSE 100-listed Hargreaves Lansdown, founded in 1981 in the spare bedroom of a house in Bristol, western England, by Peter Hargreaves and Stephen Lansdown.

"I don't think Peter and Steve could set up the business from a back room today."

The impact of regulators sparking consolidation in the financial advice market by raising the bar for entry sits at odds with their efforts to encourage a more competitive banking industry by easing access for new players.

One regulatory reform that has shaken financial product selling to the core is the Retail Distribution Review (RDR), which came into force at the start of 2013.

This replaced commissions-based sales to consumers with a system of fees, emulating the model employed by professions, such as the law.

The reforms, alongside higher barriers to entry for financial advisers such as more rigorous qualifications, aim to ensure investors are offered what matches their needs rather than what pays the salesman the best commission.

As well as the disappearance of small, neighbourhood financial advisers, some larger firms have either exited the UK retail advice market or refocused on richer clients with more to invest and consequently promising greater profits.

French insurer AXA (>> AXA) is planning to cut 450 financial advisory jobs at its UK banking joint venture, saying new commission rules make it tough to turn a profit providing such advice.

British retail banks, including Barclays (>> Barclays PLC) and Lloyds (>> Lloyds Banking Group PLC), have wound down their provision of financial advice to mass-market clients.

This leaves Britain's investment advice market increasingly dominated by large national networks like Hargreaves Lansdown and rival St James's Place (>> St. James's Place plc), both of which have seen assets rise partly at the expense of smaller competitors.

Gorham was speaking to Reuters after the company published a trading statement showing the amount of assets administered for its clients rose 4.7 billion pounds to 35.1 billion pounds during the three months to the end of March.

"We call ourselves an investment supermarket. If you look at supermarkets. It's competitive and there are only four or five big players," Gorham said.

"It's dominated by the big players who have the best negotiating power, they've got economies of scale and our market is very much like that."

(Editing by Mark Potter)

By Chris Vellacott