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Comment of the week: Due diligence must focus on shareholder pain threshold

In the brave new world of platforms, pricing is flexible and not fixed. So far, this has benefited the existing customers of a number of platforms as charges have reduced.

But this works both ways and the important word is sustainability. How long will very cheap charges last if not supported by profitability or, even more important for shareholders, return on investment.

Therefore, to base a platform choice purely on current charges is very shortsighted. The due diligence question is not “financial strength” but “shareholder pain threshold” in the many cases where profitability and ROI are absent or poor. It’s not much use asking the management.

How many at Macquarie saw the chop coming? Same previously at Amex. 

This does not make life very easy for advisers since most platforms are notoriously shy on disclosing business plans and financial performance which are needed to make such judgements.

What’s left is to ask awkward questions (assuming the right people are even accessible) and see how much they flinch.

Stanley Kirk



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