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FCA: Firms are not putting clients at heart of platform decisions

Some advisers are failing to put client outcomes at the heart of their platform due diligence, according to FCA technical specialist Rory Percival.

Speaking at the Institute of Financial Planning annual conference in Newport, Percival said advisers should be assessing which platforms offer the best deal for their clients on a regular basis.

He told delegates: “The platform is paid for by the client, so we expect advisers to be thinking how they act in the client’s best interests, and how they get the client a good deal. That is why we expect firms to think about this on an ongoing basis, because what is a good deal for the client now might be very different in five years’ time.

“We do see firms which in their due diligence process are not thinking about the client, but are just getting due diligence packs from the platform. That is fine for information, but it does not relate to the firm’s clients.

“Or we see firms which justify using a platform based on reasons which are very much firm focused.”

He added: “All we are asking people to do is think about what is right for the client. You would not move a client for a few basis points, but there are some clients who, because of the pricing moves over the past year, could move to a platform which charges less than half what they are paying.”

The FCA will look at platform due diligence as part of a thematic review on retail investment advice due diligence later this year.

Percival said the regulator does not view platforms as a product or as a piece of technology, but as a service.

He said: “We appreciate that moving platforms is a big issue for a firm and for clients. It is not something we expect firms to take lightly or to be doing all the time, but if there are significant differences between platforms and having gone through the due diligence process you have decided another platform is best for your clients, then you should be switching.”

Percival said while there is no set frequency rate at which platform due diligence should be carried out, the regulator would be happy with firms carrying out the process on an annual basis provided it was of sufficient quality.

The Lang Cat principal Mark Polson, also speaking at the event, said many of the issues around platform due diligence relate to the “prioritisation” between suitability for the adviser and suitability for the client.

He said: “We talk about platforms as if they are things that we buy as advisers, but of course it is clients who pay for them.”

Polson also said he expects more platforms to introduce fixed or capped fees as opposed to percentage charging.

He said: “In the direct market we are seeing a lot more capping of costs – that is because investors can now see what they are being charged.

“I’m hoping platforms will begin to realise that if they want to demonstrate suitability for affluent clients they need to think about an element of fixed fees or capping. I am stunned at how vanilla the pricing is in the advised market. A little more complexity in pricing could lead to better client outcomes.”

Polson added that advisers also need to consider exit fees as part of their due diligence.


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There are 24 comments at the moment, we would love to hear your opinion too.

  1. As an investor I do sometimes wonder why so many use the Big 3 or other potentially expensive platforms when I pay £75 pa fixed and have access to Investment trusts ETFs and shares as well as UT and OEIC. I thought the brave new world post RDR was supposed to be better ?

  2. Thanks Bones, however I think the people who this article is aimed at are the advisers who are providing advice to clients, not execution only investors.

    Having said that, I totally agree about so many using the big 3.

    Also, from the discussions that I have with other IFA’s most chose platforms for one or more of the following reasons;
    – Reduce costs within the business
    – Streamline the business
    – Offer a specific investment proposition
    I could be totally wrong, however all of the above have the client in mind. Reducing cost ultimately means that they charge less to the clients, as does streamlining. Specific investment propositions are also usually offered to the clients to take advantage of should they so wish.

    The FCA have spent so many years accusing everyone of selecting providers due to remuneration, now they have to move on to something else. The remuneration argument has gone, where do they go now. Please leave the IFA community alone to get on, concerntrate on their jobs, and run their businesses. The regulation/compliance red tape is absolutely mind blowing.

    When are the FCA going to do something to actually help us? I honestly believe that the mojority of projects and reviews that they have carried out over the last few years have actually been detrimental to the end consumer.

    A prime example is RDR. This had the major effect of forcing the banks to stop selling products. While we all say this is good, i believe that it is a huge loss as the banks provided a good service to the masses. That has now gone and fewer people are saving less. Big problems in years to come. The FCA need to realise that people dont ‘buy’ financial products, they are ‘sold’ them (i know its a dirty work, but its true!).

    Rant over.

  3. I hope the FCA don’t fixate on price and costs !! Although Rory has suggested as such !

    Nothing yanks my chain more than some people in this industry who continuingly bleet on about how much things cost !

    It worries me more when companies head line is we are cheaper than the rest, and I run a mile they are either buying business or run the risk of folding some where down the line ?

    If everything was down to cost; I would have no clients, every-one would drive a Daica,, every-one would stuff their money under the mattress, live in the dark, write more letters, and every-one would shop at poundland !

  4. There is a very good (free) white paper on the Synaptic / CFSL website written by the Lang Cat: ‘Rising to the challenge of product comparison and projections in the post-RDR world’. Looks at the challenge of platform due diligence. Its called ‘Apples, Pears and the RDR’.

  5. One issue I struggle with is that while a more expensive platform may be cheaper administratively from the IFA’s perspective and therefore reduces the significant cost to the client to whom the admin costs is passed on, it becomes difficult to justify in hindsight a higher charging platform. For example, a client switches off his ongoing charge after 2 years. He invests on that same platform for a further 15 years as may be the case with say a child’s investment or a pension arrangement. That client is paying a significantly higher charge for most of the period of his investment on the basis that it was initially more convenient for the IFA. I think advisers need to have a conversation with their client about costs and long term implications should the adviser no longer advise the client….

  6. @ Steve . my post had nothing to do with ex only. Advisers can use ATS quite easily with additional benefits to the D2C side.

    @ DH . cost is certainly not everything. It should however be considered far more than it is by so many who continue to deal “out of habit” Nothing yanks my chain more than advisers with their hands in my pockets. Provide a good service then fine but put me with a bog standard UT/OEIC only ISA platform and then expect me to pay the platform £3,000 pa then I’m not so happy. The onus is on the adviser to justify the additional cost – not to just continually bleet on with nonsense such as “you only get what you pay for” Sometimes you do- sometimes you do not.

  7. @ Bones

    Your comment seems to suggest you have more of an issue with the adviser “having his hand in your pocket” than the platform ?

  8. @ DH sorry it is in the nature of these posts, perhaps, to write too quickly. I have an issue with anyone “having his hand in my pocket” not just advisers. Some funds charge far too much as well. My basic concern is that too many advisers appear to be taking it far granted that 0.X% pa for what is effectively a carrier bag service is quite acceptable. Having always Sold ( sorry advised) UT and OEIC or Bond and having set things up quite nicely with Platform X there does seem to be a reluctance to consider other less expensive options and also to feel no need to have access to IT, ETF and Individual shares.

  9. I am amazed by platform representatives that make their play for adviser business based on how easy it is for the adviser to use.

    It’s also interesting to see this practice defended within the comments.

    Are people really passing on these perceived savings to their clients? If so, are they charging a higher ongoing cost to those with legacy/harder to transact business? I can’t remember seeing this approach to charging from people I have spoken to.

    If I can place a client on a cheap platform that charges 0.25% PA for comparable administration of the same investments as a platform that charges 0.50% PA, and my ongoing charge will be comparable, what is the justification for the higher fee?

    From a compliance perspective, we’ve been advised to note the spread of cost from the cheapest platform, and undertake annual platform DD with six-monthly updates. This isn’t too onerous and has resulted in a steady reduction in the cost to the client – great outcome.

  10. Boring as ever some fixate on “cost, cost, cost.”

    There is on one word that counts and that is “value”.

    I note that the regulator has lied to us again and yes I do mean lied. In the run up to RDR FSA repeatedly stated they had no intention of regulating price and that they were only interested in making sure clients understood what they were paying for.

    Mind you they keep telling us they are doing a good job so I suppose I should not be be surprised…

  11. If you are hourly charging then cost is more of an issue. If you are taking a fixed percentage then I struggle to see how you can as readily use the argument that using one platform because it is convenient. I do not see tiered adviser charges of 0.5%% or 0.51% for example!

  12. @Simon Webster – what value does using a more expensive platform express for the client?

    I can’t see the FCA imposing price controls at all, but if the end result for the client is identical between a 0.5% PA platform and a 0.25% PA platform, what is the justification for the extra 0.25%? Where is the added value in relation to the added cost?

  13. AN IFA
    A few issues:

    Fund range
    Portfolio analysis tools
    Ease of use for the client
    Reporting on (for example) CGT

    You may feel that these things don’t matter and perhaps they don’t – to your clients – but they do matter to ours. Indeed CGT management is a central part of our proposition. It’s worth noting that to get the facilities we require we don’t need to go to a particularly expensive platform – the ones we normally use are regularly towards to the lower end of the cost scale. But it is never about cost in absolute terms.

    I could drive a Lada ’cause its cheap. I choose to drive something both nicer and rather more expensive because I like it and to me that’s about value…

  14. Two years ago we changed platform providers as part of your readiness for RDR and for all clients that had invested within a two year period we moved them for no fee. However, I am not about to start changing platforms every year as the clients would have to be charged for that work, which would defeat the objective.

    I sometimes wonder if the regulator understands that there is more to any platform an adviser uses then just initial and ongoing costs.

    We use a platform that marries up with our back office system, provides the client with full online disclosure, allows client valuations, document storage, planning tool, secure messaging, online switching and the list goes on.

    When will this cost issue whilst important stop being the only consideration by the regulator. Do some more in depth research and find out what is provided for the cost. Fact, it is cheaper overall to use our system then using another low cost option, because the additional work we have to undertake to use the cheaper offerings has to be paid for somewhere as it takes our staff additional time.

  15. Contractually anon 7th October 2014 at 3:51 pm

    Isn’t the point of this that were there are extra costs being borne by the consumer, that the reasons for those costs can be justified (hence ‘value’).

    Most reasonable people will accept the something that costs more could offer more. It is important to make sure the people paying those costs understand what the additional benefit is and why it is relevant to them.

    However, if a 0.25% platform provides exactly the same benefit for an individual consumer than a 0.50% platform, cost becomes critical. The article suggests that the FCA are seeing firms where the consumer cost isn’t even considered. Therein lies the problem.

  16. @ Simon

    Fund range – Do Skandia, Cofunds, FundsNetwork now offer ETF, Investment Trust and shares ?
    Portfolio analysis tools – These are readily available at little cost
    Ease of use for the client – Client can Deal for themselves for £75 pa if they wish
    Reporting on (for example) CGT – Not rocket Science – readily available programs do exist

    Please explain to me why with £600,000 in ISA I might prefer to pay several thousand pounds a year more to one of the big 3 ?

    It is wrong to assume that cheap is best – I think we all agree on that BUT it is equally wrong to say cost doesn’t matter, only value matters – when so often there is little or no extra value for the extra cost.

  17. @ Contractually Anon

    I think you are right to a degree if its a simple no bells or whistles investment cost maybe a very important consideration, but also I think we need to move away from a one platform fits all approach. I currently run 3 which I believe covers all the bases my clients would or may need.

    My, and I think Simon Webster’s point is, let move away from this incessant cost and pricing issue it is a small part of the overall picture, and I would have serious miss-givings if t their whole due diligence is based on price alone !! that’s just crazy !

  18. If you are a one IFA firm, your brain can probably cope with using between 3 & 5 wrap systems so dd by market segment is one way to do it. In a larger IFA firm with different preferences and priorities for advisers, then as a firm you could probably cope with more active wraps in use as you can refer in house for someone with experience of use OR by having admin staff more focused on ADMIN & advisers on advice.

  19. @ Bones

    In fairness I reviewed ATS’s offering and found it lacking, parcitularly as we typically deal with cases where there are one or two GIAs and two ISAs for a couple. We see them as a single client for fee purposes but ATS would charge each account wrapper fee.

    Also, your portrayal of their services being offered for £75 is false, as that would mean no investment instructions given whatsoever. The advised ATS platform also has access to an “all in” fee structure, which covers up to 25 trades (IIRC) a year.

    I do hope they will be a disruptive force in the platform market, but in terms of size and scale they don’t have the influence (yet?)

    Things are never cut and dry, of course.

  20. @ Simon – ‘I could drive a Lada ’cause its cheap. I choose to drive something both nicer and rather more expensive because I like it and to me that’s about value…’

    But would you say its good value to lump your clients into BMWs when they only need a cheap run-around?

    You also mention that certain facilities are core to your proposition, but the article staties that the platform choice should be right for your consumers not for your business. They’re the ones paying for it.

  21. The FCA need to remember that Finacial Advisers are managing a business. The more efficient that business is drives profits up and costs down.

    Having 100 clients on 10 different platforms is inefficient and would cost the end consumer dearly.

    I agree that the platform has to meet the needs of the end client, but if that end clients need is to recieve an efficient and cost effective access to financial advice, that is justification enough?

    Most advisers that we deal with at Plan Works, use a few different platforms dependant upon the individual clients needs.

    I don’t subscribe to the notion that if you are recommending a single fund solution you should purchase directly from the fund provider. Why? Because what is suitable today, may not be suitable tomorrow thus adding additional implementation costs further down the line. So recommending the platform at the outset is more efficient.

  22. @ A.N.IFA I would prefer to say that my £75 was incomplete or simplified rather than false. Having bought £600,000 within an ISA I am paying £75 pa Total Fixed costs until such time as I make a change. The £600,000 is made up of mostly Investment trust, with Passive ETF and a few passive UT/OEIC Overall TER of less than 0.4% pa

    Changes will be made but not every five minutes. I don’t subscribe to rebalancing just to keep the FCA happy or as a way of charging further fees. when they are needed £12.50 to sell a £50,000 holding and £12.50 to buy another will only make a small dent in the several thousand pounds annual savings that many other platforms/wraps would have charged

  23. Matthew

    We have a proposition which we commend to clients. That proposition has features, benefits and costs all of which are carefully explained. Sure I could sell my clients a cheap runaround. But clearly to the surprise of one or two here many clients value service and support sufficiently that they are very happy to pay a commercial rate for it.

    The fact that our CGT management service effectively adds back c 1% per annum in value may also have something to do with it.

  24. My firm uses Synaptic Comparator as it analyses both features and costs to allow an adviser to understand where the value lies – and then let their clients reap the benefits. In our view, balance achieved!

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