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Nucleus: 6 key questions your platform needs to answer


Regulation, in particular the FCA platform paper PS13/1, has placed a greater onus on advisers to ensure the platforms they are recommending are deriving revenue in a compliant manner.

However, I think the risk to advisory businesses goes deeper than the platform simply being compliant by 2016.

Event-driven charges can be a lucrative revenue stream for platforms. In order to de-risk recommendations and platform selection, I think a clear understanding of the underlying pricing strategy is essential to:

  • Know what clients are going to be exposed to; and
  • Understand how sustainable the pricing strategy is

So what are event-driven charges?

Unlike predictable core charges, such as the annual platform charge, event-driven charges are unpredictable and levied for ‘doing things’ such as withdrawing money, switching assets, re-registering or transferring money, moving into different investment structures within the platform, pension reviews and a whole host of other things I won’t bore you with just now.

There are however lots of them in existence and, by definition, pretty much all clients need to do things with their portfolio so they are central to how platforms derive revenue.

We have worked with Nucleus advisers to prepare six key due diligence questions on revenue sustainability, aimed at understanding a platform’s level of dependence on unstable revenue strategies.

Six key questions:

  • What was the % split of your revenue (based on the past three year’s accounts of your platform business) between fixed and event-driven charges?
  • What is your average bp client charge and how is it divided between fixed and event-driven charges?
  • Please supply copies of the financial accounts of your platform business that these figures are derived from and can you highlight the relevant sections?
  • What % of your book is on adviser charging?
  • How much revenue have you achieved from fund manager rebates in the past three years?
  • How much revenue do you anticipate achieving from fund manager rebates in the next three years?

Some things to look out for in the responses are:

  • Is the information easily supplied?
  • If past revenue has a tangible dependence on extra charges, you can then take a view on how credible the platform is in articulating their charges.
  • If supplied, do the figures in the accounts match the answer to Q1? If not why?
  • If the accounts are not supplied at all, why not?
  • If revenue from rebates has been high but is reducing, has it been made clear how this will be replaced?

Event-driven charges are under increasing pressure from competition and growing consumer awareness so dependence on them by platforms raises questions over future viability.

If losses are being made already, or profits rely on them, what will happen if this revenue stream goes when the market won’t allow an increase in core charges to compensate?

Finally, and back to the first point on PS13/1, the level of past and future revenue derived from rebates via bundled charging is key to forming a view to whether the business is well-placed to survive after 2016.

If it has historically derived a significant portion of its revenue from a charging strategy that regulation is about to consign to the dustbin, what impact will that have on future viability?

Terry Huddart is technical communications manager at Nucleus Financial



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