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Mark Cotter: The Russian doll of platform due diligence

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With the news last week that Standard Life has acquired Axa Elevate, I suspect many already overworked advisers are heaving weary sighs. “Not more due diligence on our chosen platforms,” I hear them cry.

These kinds of industry developments raise an interesting question: which parts of the platform chain are you evaluating? Is it the parent company, the platform or the underlying technology provider? After all, it is rare for these three to spring from the same source. When you start digging deeper, it is often a case of Russian doll syndrome, with the detail becoming increasingly difficult to pick out.

For example, if a platform changes ownership, is a full review required? I expect most advisers would say yes to that. What about changes to the underlying technology provider? Maybe. Or third party tools provider? Probably not. And what about other, more subtle, relationships between a platform and the multitude of firms it will contract with as part of the proposition? Should advisers be expected to keep tabs on all of this and on all of the platforms they use and/or have on a watch-list?

All this seems even more problematic when we consider the general move towards takeovers and consolidation as a result of shrinking margins. The number of possible platforms for advisers has doubled in the past five to 10 years, whereas the number of technology providers has shrunk (with consolidation apparently happening beneath the surface rather than upon it), making the landscape even more tricky to navigate.

None of this, of course, has been made any easier by the regulator, with the FCA’s principle (rather than rule) based guidance on the subject providing little clarity for advisers. For example, the FCA gives no indication as to how many platforms an adviser should use (just that one is unlikely to be suitable for all clients) and no guidance as to how often due diligence should even be done. We know platform due diligence is important and we know it is required but advisers are left to work out what that means in practice.

Setting aside the practical problems for a second – and assuming an advice firm even has the time and all the information needed – is this exhaustive ‘belt-and-braces’ approach even sensible or efficient to do in the first place? After all, if you dig deep enough, you will most probably find the same few bits of underlying technology anyway. If you review the underlying technology of your platform provider, you are probably reviewing the same technology as a few others you do not use. This could potentially prove tricky to reconcile if you place a heavy weight on the underlying technology as a factor but only select one of several platforms that use it.

The actual relationships between these various parties (eg platform to technology provider) are just as important but equally tricky to assess. Should advisers know details such as the structure and duration of the contract, service level agreements, support, termination clauses, where the various responsibilities lie, agreed regulatory (and other) driven changes, the financial and manpower committed to development, and so on? Should they be asking their platform to be privy to these detailed questions? Can platforms even give these answers if some of the information is sensitive or confidential between them and the technology provider?

I do not have an answer to all of this. However, perhaps in light of the above, it is better to ignore the technology to some extent and concentrate on the broader proposition, functionality, service levels, commitment and profitability. Is this sufficient from a regulatory due diligence point of view? If the FCA thinks not, it would be good if it could tell us just how many Russian dolls we do need to look at.

Mark Cotter is a consultant at Altus Consulting


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