The Financial Conduct Authority warned it was running out of patience after the second of three health checks on how advisers are selling investments to individuals following reforms introduced at the start of 2013 including stricter rules on transparency and disclosure.

It said it was likely to refer an advisory firm and a wealth manager to its Enforcement and Financial Crime Division for "egregious failings", without naming either, and warned more referrals could follow at a third review later this year.

The regulator has the power to impose fines and revoke licences to operate if it uncovers serious failings.

While wealth managers and private banks, serving richer clients, were among the worst offenders, failings were "widespread across the industry", it said in its statement.

"I am disappointed with the results of our latest review looking at whether advisers are clear with their customers on costs and services provided," said Clive Adamson, director of supervision at the FCA.

"These results are a wake-up call and we expect the industry to respond."

The FCA's reform of financial product-selling to private investors, known as the Retail Distribution Review, has already caused massive upheaval among advisers, many of whom have closed down or sold up following a ban on commission-based sales.

The new rules force advisers to charge clients a fee, rather than taking commissions if they make a sale, prompting concerns customers will shun advice.

Andrew Power, a partner at consultants Deloitte, said the latest FCA check could prompt more companies who were delaying implementation of the rules for fear their clients would balk at the new fees, to shut up shop.

"If it was a case of hiding (charges) and not being completely transparent because I'm worried the client won't use me, then those people might say it's uneconomic to carry on in terms of the lack of client willingness to pay," he said.

Just last week, a number of UK wealth managers took steps to shake up their business plan, and analysts said consolidation was likely in the industry, which remains highly fragmented.

(Editing by Simon Jessop and Pravin Char)

By Chris Vellacott