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FCA to review advisers’ platform due diligence

The FCA is to examine the level of due diligence advisers carry out when choosing a platform as part of a thematic review later this year, Money Marketing understands. 

In its 2014/15 business plan last month, the FCA annouced it would be carrying out a thematic review on “effective due diligence for retail investment advice”. The regulator is still assessing the extent of the review and what it will include, though Money Marketing understands this will cover platform due diligence.

A spokeswoman for the FCA says: “We are still undertaking the scoping work for the thematic review into due diligence and will announce in due course what areas the review will cover.”

Since April, platforms have been required to charge on an unbundled basis and have to pass all rebates back to consumers on new business. The final rules state that advisers are responsible for ensuring the platforms they use are compliant.

The Platforum managing director Holly Mackay suggests advisers address questions beyond just price and functionality when choosing a platform. She says: “Advisers need to ask themselves things like: What do my clients actually need? Does this client need a platform in the first place? Do I need more than one? Does my client understand what it costs? Is the platform reliable?”

The Lang Cat senior consultant Sam Lynn says: “There is an in-built tension at the heart of platform use – suitability for individual clients versus scalable, repeatable efficiencies for an adviser business. That is a recipe for potential conflict of interest so it is really no surprise to see the FCA wanting to take a closer look at how advisers make their platform selections.”

Invest Southwest managing director David Penny says: “Past failures like Keydata show there can be no harm in checking advisers are working with organisations that are reputable and solvent, and that includes platforms.”


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There are 21 comments at the moment, we would love to hear your opinion too.

  1. Today I have just started a “thematic review” into making sure I am opening my tin of beans correctly !!!

    This of course will take me 2.5 hours at a cost of £180 per hour (just in time for lunch), surely a good use of my money as I don’t want to spend the rest of the day on the toilet !!!

  2. Soren Lorenson 8th May 2014 at 10:12 am

    Just leave it alone.

    Everyone knows that all platforms are broadly similar. It makes almost no difference to a client whether their platform is Novia, Ascentric or Cofunds. It’s is basically a business choice for the adviser to allow an efficient and cost effective client service.

    We all know that you can make your platform research say whatever you want it to say.

    And what due diligence can an adviser do compared to the FCA with its £0.5bn annual budget. If the FCA has authorised it that should be due diligence enough.

    Why are we wasting client fees twice – once on a useless and pointless regulator and again trying to prove a firm is sound with little more than commercially published information from that firm.

    Now instead of attacking advisers, causing extra cost to clients and stress to firms maybe the FCA should look to see whether they have authorised any platforms the use of which would be truly detrimental to clients.

    Then they could concentrate their efforts on places where real consumer detriment exists such as the failure of yet another organisation where Capita is the ACD and where, no doubt, advisers will eventually have to pay.

    More time-wasting, box ticking nonsense from a failed regulator.

  3. goodness gracious 8th May 2014 at 10:16 am

    Different platforms provide different services and if there is a certain type of investment you feel is suitable for your client, you need a platform that can facilitate the whole recommended investment. Some of the analysis that certain platforms provide on a statement looks impressive but if the cost of the platform is higher but your client appreciates it, then fine. Otherwise a lower cost option may be better for the client. However there are some platforms that are so clunky to use that the time/cost in recommending it could lead to a higher fee to the client, negating the cost savings.
    I see no issues with solvency of a platform as holdings are not part of a platforms assets. However the additional work that would be needed to transfer assets held on an insolvent platform to a solvent one would be an expense we would not like to have. Mind you, if a platform became insolvent, the holdings would be almost certainly be taken over by another platform so is there really much of an issue.
    Perhaps other advisers do not think like we do, however if everything you do is for the benefit of your client, there is no real issue.

  4. Is this really regulation or is it because some jobsworths are worried that they are not justifying their salaries?

    I do understand that they are trying to prevent problems and disasters, but for heaven’s sake can’t they (using their own odd parlance) take a high level approach. They regulate platforms – if they find there is something not acceptable with a platform then do something. But this micromanagement is really getting ridiculous.

    What next? A thematic review to ensure advisers have a decent breakfast so that they can concentrate better in the morning? Or a thematic review ensuring that advisers don’t row with their wives before going to work and then take it out on their clients?

    Come on Mr Wheatley – please let’s have some common sense and a bit of peace – for all our sakes.

  5. Today I will be mostly deworming the dog. lol.

  6. I’m sure that most Advisers will have little difficulty explaining why they deal with platform A rather than platform B.

    My own preference is for Alliance Trust. The £75 pa fixed charge means that most clients save significant amounts when compared with any of the major platforms. So long as arguments can be made to explain why a client is paying considerably more ,how and why they benefit, I can’t see any problem.

  7. I think some of the above comments are lazy. To look at the specific example above of Ascentric, Cofunds and Novia – with some pretty standard assumptions the cost differential to a client with £500k would be £995 p.a (from cheapest to most expensive). So over a 10 year period that’s eating into total returns by circa £10,000 just because of the administration platform chosen. Tell me that doesn’t make a difference to anyone or that a client wouldn’t care about that.

    I have seen some great examples of advisers making sensible, fair, client-focussed platform decisions which need not involve a re-write of War and Peace and do not require platforms to be broked on price. And cost is certainly not the only factor. But I have also heard far too many tell me ‘what the answer needs to be’ or leave their clients on a platform which was competitive 5 years ago but is not today. And that sucks.

    I would hope that any Thematic Review would involve the platforms and advisers alike to come up with some good practice which is not excessive BUT ensures that advisers have greater clarity about which platforms suit which types of clients, have more confidence about which questions to ask AND makes sure that customers are not paying over the odds simply because Platform A makes their advisers’ life easier (if that is not reflected in the adviser’s charging model.)

  8. Holly

    By logical implication then practically all the platforms would disappear and we would all use Alliance.

    My process thus far has been to ask the platforms that I use to justify their cost against that of Alliance. So far I have met with a deafening silence.

    Sure cost isn’t everything, but you would be hard pressed to put a cigarette paper between the cost and the justification for higher charges.

    So as I said – if the Regulator is unhappy with the charging structures of some platforms – why don’t they say so? I actually know the answer. Their mantra is ‘We are not a commercial judge’.
    No they are not – they just expect us to do the job for them and then clobber us if they aren’t satisfied. In other words they set the balls for us to fire and then believe they have clean hands.

    I’m afraid your own post is just a justification for your own service – which admittedly is useful.

  9. Harry I’ve missed you! It’s been ages since you told me off on a blog!

    It’s always tricky to debate things in short blog posts but I don’t entirely agree with you. ATS are arguably not suitable for clients with less than £50k given their fixed fee nature; they wont work if you want offshore bonds on platform; they wont be suitable if you use a DFM on platform; the model portfolio functionality needs work; the IT systems are under review – so although they are an important feature of the platform landscape and a good and viable alternative for some, there are lots of reasons why they will not be a workable option for many advisers and their business models.

    As for justifying my own service….it’s been ages since I’ve thought like that. Revenues from adviser due dil projects are a teeny tiny fraction of turnover. I’ve also learnt that you make a lot more money out of saying what you really think and being an impartial and (hopefully) fair observer and gaining an audience than you do in dressing up boring sales pitches as seemingly impartial editorial. Which everyone sees through anyway. The above post was because I genuinely think that some customers end up on the wrong platform and it comes out of their savings pot or impacts the service that they get. And that’s wrong.

    Nice locking horns again.

  10. Holly

    Now you’ve opened an entirely new can of worms. DFMs are another bee in my bonnet. I occasionally use one, but they have to operate on my rules:

    No Collectives – I can do it cheaper than they can
    Direct Equities only
    No model portfolios – everyone genuinely bespoke. When you have two or more identical people, then perhaps they can have a model portfolio. (The lazy way to invest).

    And I take no pecuniary interest. The client is then his. Therefore it isn’t an ‘outsource’ it’s a referral. I may well have charged for initial advice, but how on earth can anyone justify taking an ongoing fee when someone else does the work? I may give an overview if asked and compare it to general performance metrics, but I won’t generally comment on the selection – unless the stockbroker is daft enough to invest in banks or insurance companies!

    I may well be asked to give investment advice on pensions, bonds or ISAs, but nothing that would have CGT implications as we (the stockbroker and me) would just be tripping over each other.
    So DFMs on platforms??!!

    Indeed unless you are on the cheapest possible (ATS) then there is scant justification for putting ETFs or Investment Trusts on a platform. As for offshore bonds – why would you do that? I presume that an offshore bond would be of a significant size (say at that £100k if not a lot more) so how hard is it to manage that off platform? (Indeed it could be argued that it is a platform of itself) Yes, the adviser may well have to produce a consolidated valuation on their own software. Oh dear – having actually to work for the trail – what a shame!

    As to putting less than £50k on a platform – I don’t think I have a polite comment for that.

    There is one compelling reason for using a platform that may not be the cheapest. That is if the client opts for the Funds Under Management charge (FUM = Trail) to be taken from the platform rather than being invoiced directly. In this case (and please correct me if I’m wrong – it would be genuinely appreciated) as far as I am able to ascertain there is still only one platform that can deduct pro rata across the board to accommodate the payment. Taking it from the largest fund or from income is patently nonsense. (I believe other platforms are working on this, but I have heard that now for 2 years!)

    No doubt these comment will be subject to outraged comments, but as you say – ‘Tell it how it is’.

  11. Julian Stevens 8th May 2014 at 7:49 pm

    According to some communication or other from DeFaqto, there are 40 platforms from which to choose. How anyone can reasonably be expected to analyse and compare all of them is beyond me. I have better things to do with my life, hence I’ve gone restricted.

  12. Sascha Klauß 9th May 2014 at 9:18 am

    Julian: A simple comparison on AdviserAsset or other software will rule out a good number of them on grounds of cost. Most of the rest can be duly considered but ruled out either on the basis that they are small, newly-established and might not exist in a few years’ time; or on the basis that they are owned by a useless olde-worlde insurer and the time it took you to deal with their administrative incompetence would cause client detriment. That will probably leave you with around half a dozen platforms which may be suitable depending on the client’s circumstances – we all know which they are. Not at all onerous.

    I was under the impression you went restricted as an act of martyrdom to your network.

  13. Julian Stevens 9th May 2014 at 10:03 am

    I tried the AdviserAsset comparison system and found it a right royal PITA, the most fundamental problem being that its results would exclude my favoured platform on the grounds that some of the funds specified aren’t available on it, despite the fact that all of them are funds in which we’ve already got clients invested on that very platform. And there’s no telephone helpline ~ you have to send an e-mail and wait at least 15 minutes for a response, which may or may not be satisfactory. After a few attempts, I thought To hell with this, it’s time to go restricted.

  14. Harry – Agree with your last post except “one compelling reason” point. As an investor I’m not clear as to why I should agree to pay more than £75 pa so that the adviser “trail fee” can be taken equally from each fund. My own preference would be to pay ad hoc fees directly to an adviser as and when but even if I agreed to pay a % from the funds what is the problem with taking it from the largest or from income ? I understand the theoretical point but with say £600,000 in vested would I be better off paying £75 or 0.35% pa of funds ?

  15. Bones

    As I said in my post my clients always chose which they prefer at outset. The figures are clearly laid out both in percentage and monetary terms. I don’t call it trail I call it funds under management charge.

    For that the client gets detailed valuations – not just the rubbish printed out from a platform website. (The detail is comprehensive and compares current valuation to the last valuation and the cost of each investment – each fund – within the portfolio. There is also further meaningful analysis. All accompanied by a comprehensive report. It is all benchmarked. All switching is free – in so far as it is included in the FUM charge. If the clients don’t want or value my service they are always free to go elsewhere.

    As to how the FUM is deducted on the platform – how is a valuation valid if fees are taken from one fund? What is a client takes no income? If he does is the income equal from all funds? So the fairest and smoothest way is pro rata across the board to give valuations some credibility. It is also deducted monthly to ensure the smoothest possible result.

    I’m not saying that my way is perfect or that it is the only way, or that others should do what I do. It’s just the way I see it and it seems to suit my clients.

  16. Harry

    Not arguing – the fairest way is as you say. No doubt others will get their act together. BUT in the real world I seem to be faced with a choice of £75 pa or a great charge with funds being charged in the fairest way. I can see why you prefer the fairest way but not sure that it is compelling enough for me to part with say another £1000 pa.

  17. goodness gracious 9th May 2014 at 11:37 am

    So we have a disagreement between some advisers and it is clear that some platforms suit certain advisers investment philosophy, others don’t. Do the depth and pretty graphs on some platform’s statements justify the additional cost or are they just an excuse for higher fees?
    What I have learned over the years is the simplicity of selecting the correct fund share class is important and those platforms that help me do this correctly at first attempt deserve my custom.
    So for the client, is lowest price the only thing to bear in mind? If a platform takes me twice as long to get the investments I wish, the client will face larger initial costs.
    Then there is the issue of the breadth of allowable types of assets held on the platform, some allow ETFs, others do not. Some allow DFM portfolios that are held in funds but are re-balanced and altered constantly, allowing some CGT relief, others do not. Some have gross roll up, others have net.
    So what will this thematic review achieve? Will Adviser Assist claim its comparison service will be mandatory? It has not proved to be as accurate as it should be, mainly because all the information it takes into consideration is obsolete, especially when there are so many changes to price, services, investments, asset classes etc. I find most of the comparison systems have flaws in them, including those available to the public for car insurance. So that’s a maybe, but by introducing an additional process into implementation and advice, it increases client’s costs.
    Then we have some platforms that are so useless, but may be cheap, that we don’t like using them as administration flaws can lead to additional time/cost to clients or ourselves.
    I guess the thematic review will not look into the minutiae of which platform is used, as long as consideration has been given to the client’s needs.
    Secondly they will probably look at cases where using a platform just to hold one multi-manager fund is justifies, or placing a pension on a platform where the underlying investments are available at lower overall cost directly with the insurer.
    Who can tell, but we will find out eventually but in the meantime your due diligence is to ensure the platform looks to be able to continue over the proposed investment period, represents fair value for the services it offers and is able to provide your recommended investments. Simples!

  18. Bones

    As I said that’s fine – you won’t be a client. I’m perfectly relaxed about that. I guess you may be the sort of guy that arranges his holidays on the internet – nothing wrong with that either. However I can’t be bothered as I just don’t have the time, so I’m content to call my travel agent. I tell her when I want to go, what type of holiday I’m looking for, how long and what I’m prepared to spend. She comes back with the solutions. If when I’m away there is a problem (as there has been on one or two occasions) I just have to make one phone call and its sorted.

    In exactly the same way I’m the financial travel agent for my clients – who are perfectly capable of doing it themselves, but don’t have either the time or inclination and would prefer me to do it and look after it for them.

  19. Harry we seem to be talking at cross purposes ? All this talk of Travel agents is irrelevant. What I might pay you as an adviser should be in no way connected to what I pay the platform. The platform you want me to use charges me £1,000 pa more than another and the only difference is that your fee is taken from each fund ( have I understood you correctly ? ) Advisers are allowed to use ATS – they are NOT D2C only.
    It is possible to buy funds thru them ( fund charge) pay the £75 pa ( platform charge) and then pay an advice charge. what is all this arranging holidays on the internet got to do with it.

    Essentially all I’m saying is that if £75 pa + advice cost + fund cost is significantly less than alternatives
    an investor might want more of an explanation than fees can be taken from all funds.

  20. All the comments above have missed the important point on pricing that 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, Transact springs particularly to mind. 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 (ROI). Therefore, to base a platform choice purely on current charges is very short sighted. 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 doesn’t make life very easy for advisers since most platforms are notoriously shy on disclosing the 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.

  21. Stan I thought that ATS making a profit was sufficient for me to ask why the others have to charge so much. I’m not saying that every adviser should place every client with ATS – simply that as ATS do offer enough to satisfy the needs of the majority of clients then Advisers might be wise to question why they are so often using platforms which charge considerably more. Take ATS as a baseline test if you will. If an adviser has good reasons to be using a particular platform for each and every client then I’m sure the FCA will find no problem. If the only reasons are habit and Adviser convenience then I’m not so such.

    So no cost is not everything and a platform has to be sound. Not a bad idea though to ask why some charge so much and for what.

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