Nucleus' Terry Huddart outlines eight new areas of consideration for platform due diligence in 2014
January is the time of year when ‘futurologists' traditionally make their predictions.
I have enjoyed reading them this time around, my favourite being that 2014 will see a huge growth in artisanal activities. This is a backlash to the rise of technology, where people seek to escape from the digital revolution via creative, practical pastimes.
Artisanal activities might include having an allotment, say, or baking cakes. The dichotomy in all of this, of course, is that people will inevitably reach for their smartphones to tweet pictures of their lovely cabbage patch or chocolate brownies - but that probably doesn't matter.
Nucleus' Terry Huddart outlines eight new areas of consideration for platform due diligence
Platforms always have, and always will be, fundamentally about technology (albeit their function is to support a relationship-based advice service) and I cannot imagine any artisanal parallels in financial services. Presumably, nobody is going to want to revert back to paper application forms or enduring call centres to do a fund switch just for the fun of it.
However, 2014 is a year where some practical realities really come to the fore in the platform world. Ironically, this is largely because of the technology. It is because platforms are the ‘new way' that they have come under specific scrutiny from the regulator and have to comply with various rules that ‘old world' products do not. However, I see this as positive because, to me, it is recognition that it is important to get the future right.
It goes like this: platforms have to comply with PS13/1 and the attendant COBS rules, and advisers have to satisfy themselves that they are doing so. Here is an overview of both.
The specific COBS wordings are self-explanatory:
A firm must not use a platform service as part of a personal recommendation to a retail client, in relation to a retail investment product, unless it has satisfied itself that the platform service provider - and its associates - only receive remuneration for business carried out in the UK, which is permitted by the rules in this section.
A firm which (1) arranges for retail clients to buy retail investment products or makes personal recommendations to retail clients in relation to retail investment products, and (2) uses a platform service for that purpose, must take reasonable steps to ensure that it uses a platform service which presents its retail investment products without bias.
So, what do advisers need to satisfy themselves of? This is all probably less self-explanatory - you need to read PS13/1 and a bunch of other COBS rules in detail - but it is possible to summarise the key elements. In a nutshell, I think the eight big areas to be aware of this year are:
1. Platforms cannot retain rebates on new business from April
2. Platforms are banned from operating cash rebates (with a few caveats) from April
3. Platforms must disclose all platform charges in durable format from April
4. Platforms must present investment products without bias from April
5. Platforms cannot cross-subsidise fund and platform costs from April
6. Platforms must offer registration on- and off- platform (no specific date/TISA is leading)
7. Platforms must not hamper re-registration by how they operate preferentially priced share classes from April
8. Platforms cannot retain rebates on legacy business from April 2016
The regulator has already said in PS13/1 that it intends to look at reading the rules across to non-platform products.
To me, it is important that this happens fast. A core rationale for these rules is to allow consumers to make reasoned judgements on the products they are buying.
If this applies to investment business on platforms (and it is estimated that around 80% of money is still off-platform), it is vital that consumers and advisers who do not use platforms yet benefit from the fairness and transparency the regulator is seeking to bring about.
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