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If the platform shoe fits

Most advisers will need third-party help to deliver RDR-compliant advice and choosing the right partner is paramount. Below is a six-step guide to platforms

Matt Ward, Wealth management consultant, Defaqto
Matt Ward, Wealth management consultant, Defaqto

The list of business challenges and considerations facing advisers in the approach to RDR is numerous. The one thing that is clear is that most advisers will need third-party assistance in order to deliver RDRcompliant advice service propositions to their clients.

The requirement for a robust partner selection process is therefore paramount to ensure that third-party systems and services can meet the needs of both the adviser business and their clients.

We believe that from a business structure and investment proposition perspective, two of the main considerations for advisers during 2011 and 2012 will involve potential partnership with platforms – fund supermarkets and wraps – and/or discretionary fund managers (DFMs).
Platform due diligence process

After deciding that adopting platform technology will benefit both the business and the client, the problem of which platform(s) to select becomes the next hurdle for the adviser. We believe that the selection of a platform should undergo a similar due diligence process to that used when selecting a product. The following sixstep procedure can be adopted by adviser businesses.

1: Financial strength: Advisers should ensure that they get to grips with platform operator financial capability and strength, complementing this analysis with the use of industry ratings. Platform operators come from a range of backgrounds and advisers will need to appraise a variety of issues in order to gauge partnership suitability, including:

  • Ownership
  • Length of time in the market
  • Profitability
  • Commitment to market
  • Future development plans.

2: Cost: meaningful charge comparisons on platforms are a difficult nut to crack but the approaches tend to polarise into bundled and unbundled charging structures. Typically, there are five key points where charges can arise:

  • Fund management charges
  • Platform charges
  • Tax wrapper charges
  • Transaction charges
  • Adviser charges

3: Product/tax wrappers: the approach to tax wrappers varies between platforms but all provide access to a general investment account (not taxwrapped) and a stocks and shares Isa. Beyond this, platforms can offer:

  • Personal pension/Sipp (inclu-ding access to drawdown)
  • Onshore and offshore bond
  • Qualifying savings plan
  • Cash Isa
  • Cash account
  • Trust structures

Advisers therefore need to ensure that they seek out platform partners who can host their desired range of products/tax wrappers.

4: Investment vehicles: one of the key reasons for buying into platforms is their ability to trade multiple asset types. The adviser therefore needs to seek a partner who can offer access to the asset types they wish to use in order to construct a client’s investment portfolio. Collectives – unit trusts and Oeics – are available on all platforms although some may offer a wider fund universe than others. Beyond this, advisers may wish to seek out platforms with trading capability across a variety of asset types, including:

  • Stockmarket securities
  • Exchange traded funds
  • Investment trusts
  • Offshore funds
  • Hedge funds
  • Structured products

5: Ancillary ser-vices: most platforms will offer access to portfolio planning tools (risk profile, asset allocation and fund research). Some are included within the platform charges while others may incur additional charges. These could be internally designed or provided by third-party specialists. The requirement for access to these tools will be governed by the advisers’ preferred approach to investment research and decision making.

6: Service delivery: beyond the key proposition components that a platform needs to have in order to meet adviser needs, the proof of the pudding in terms of user experience is likely to come in the quality of the user interface and the service delivery. This provides a challenge for advisers in that it may be difficult for them to ascertain service performance when appraising partners. Advisers should ensure that they question platform operators on whether they make any service standard charters or service results publicly available.

We study adviser service satisfaction within the life, pension and investment markets and have recently started assessing service satisfaction within the platform market. We ask advisers about their service delivery experience across a host of platform service and proposition functions.

This survey information forms the basis for our star ratings on platforms which are available to IFAs through our Engage research tool.

Advisers also need to keep a close eye on both industry initiatives and regulatory activity on platforms. Important discussions continue on topics such as the use of a single platform solution, the treatment of fund manager rebates and the re-registration of client assets. The outcome of these discussions will shape the way in which platforms operate.

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