Jeremy Mugridge explains the due diligence process advisers need to go through when choosing a platform
Evolving customer needs and the changing regulatory landscape within the financial advice market are encouraging advisers to review and revise their business models. Platforms today offer enormous benefits for customers and advisers through their wide investment choice as well as a range of tools which allow a portfolio to be planned, reviewed and maintained in one place.
While it is easy to see how platforms benefit the end consumer, advisers are finding it much more difficult to identify which platform(s) best meet the needs of their clients. Advisers are likely to find themselves bombarded with opinions and advice from colleagues, providers and ‘experts’ on which platform to use. This noise can be distracting, but advisers need to remember two things; the first is that meeting investor needs is the only basis for choosing a platform, and the second is that the final platform recommendation should be based on the adviser’s opinion, not the opinion of others in the market.
The FSA has been clear that advisers must conduct a comprehensive review on a platform before recommending it to a client, stating: ‘The suitability of any platform will depend upon the client’s particular circumstances and requirements. Irrespective of any strategic firm decisions to use a platform, you must still consider whether a platform is suitable and meets each client’s needs before recommending it.’*. Platform recommendations therefore will need to be based on sound reasons, backed up by evidence, and the adviser must be able to fully explain why the selected platform is right for their client. This makes the due diligence process no easy task.
Because the suitability of a platform must be reviewed for each customer, the issue of carrying out due diligence on platforms is a growing challenge for advisers. So where does an adviser start with the due diligence process?
The FSA’s platform factsheet outlines nine key elements that an adviser needs to consider when selecting a platform.
• The platform provider terms and conditions
• Fund and wrapper range
• Range of assets
• Additional tools
• Support services
Within each of these key areas there are a number of questions advisers could ask. How the platform is financed and how financially secure it is, are certainly elements which an adviser may wish to consider. If the adviser is interested in the provider’s terms and conditions they may ask about the company’s complaints procedure and what the platform’s best execution policy is.
Price and service
While price isn’t everything, charges will be a key area for most advisers and customers. When selecting a platform, advisers need to at least understand any price differentials before considering a more expensive platform. The key consideration for the investor and adviser will be: Does this platform represent good value for money? If the charging structure is easy to explain, it is more likely that the customer will be able to understand the associated costs of the platform and whether it represents good value for money. Charging models differ from provider to provider and without a platform cost comparison it is virtually impossible to determine the value for money that a platform offers. There are a growing number of tools available in the marketplace that can help advisers compare the costs of platforms.
The range of assets and wrappers available should also be examined. Selecting a platform that offers the right amount of choice for the client is paramount. Advisers may want to know how the platform selects the funds that are offered – some platforms simply add funds by demand, while others will conduct their own due diligence on funds before making them available.
Platform functionality and the tools available are two other factors to consider. Tools can add significant value when giving investment advice. However, the availability of tools on platforms varies greatly, with some platforms offering a full suite of portfolio planning tools and others redirecting the adviser to third party providers that charge an annual fee, which of course will add cost to the customer.
Accessibility and support services should also be examined. Knowing which back office system the platform can integrate with and the amount of business that can be done online will help many advisers assess whether or not the platform is suitable. Additional services such as online and telephone support provided by the platform may also warrant consideration as these can improve the overall service experience for both the adviser and the client.
*FSA factsheet ‘Platforms: using fund supermarkets and wraps’
Jeremy Mugridge is platform marketing manager at Skandia
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