Contrary to popular belief, price should be the last factor to consider when it comes to platform due diligence. So, where to start?
I talked in my last article about the new rules governing platforms due to come into play for advisers in April. One of the key obligations for advisers will be to ensure that the platforms they are recommending to clients comply with PS13/1 and the attendant COBS guidelines or – cutting the geek chat – that they are playing by the rules.
Ahead of this shiny new piece of legislation coming into effect, we prepared a white paper, in conjunction with some smart advisers and compliance people, outlining the key questions advisers should ask of their platform providers to ensure they can meet their requirements. One of the main recommendations was the importance of a phased approach to due diligence.
Contrary to popular belief, price should be the last factor for advisers to consider. That is not to say that price is not important, because it is: the key is knowing at what point in the process it becomes important.
We are currently going through a period where there is a whole lot of manoeuvring over fund pricing and structures. This may well be considered a smokescreen designed to avoid easy comparison – but perhaps more on that another time.
It is only when comparing like-for-like solutions that can adequately support client propositions that price comparisons become relevant. A 'compare the meerkat' mindset simply does not work in this sector due to the huge diversity in advisers' client propositions and platforms themselves.
Instead, client proposition has to be the first step. Identifying which platforms can best support this upfront will ultimately save time.
Another area of due diligence that we think comes before price is service.
What is the point in using a cheaper platform that offers below-par service? The risk is that bad service will just result in extra work for the adviser, leading to potentially more billable time, which then defeats the purpose.
There are various ways to evaluate service but I think peers' opinions – who are, after all, the only people to experience similar service – are invaluable. Speaking to someone directly for feedback is always great.
However, when assessing a range of platforms, and on the off chance you do not happen to know someone who uses every single one, there are a good range of collated peer reviews available. Companies such as Core Data, Investment Trends and The Platforum, for example, regularly share their findings.
If we take The Platforum as an example, I have been doing some sums based on user ratings collated quarterly since 2009 and the results have been interesting. They tell a story over time: some have got better, some have got worse and some have stayed about the same.
Overall, though, the mean market average rating across the ten different factors that make up service has declined by a few percentage points.
Seeing as platforms are about technology, service should be more than just in the traditional sense and should include the likes of ease of doing business, web usability and usefulness of tools. Yet platforms in this period have collectively improved (in my opinion) and spent millions on development, so how can this be?
User expectations are logically increasing. It is the same with all technologies – what was good ten years ago is obsolete today. So, even with market pricing coming down (smokescreens aside) and, in theory, a better product available for less, platforms need to remain seriously on their toes to keep pace with what increasingly savvy users see as acceptable.
As there is likely to be a lot of due diligence activity taking place due to the new obligations placed on advisers by PS13/1, it is an opportune time to also ask platforms how they can really evidence service quality across different areas.
If they cannot provide evidence of peer reviews, it is now easier than ever to obtain them yourself.
Terry Huddart is market insight manager at Nucleus
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