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Practical platform policy

The long awaited platform consultation paper from the FSA is bound to spark intense industry debate.

Paper 10/29 certainly brings further clarification on independence and the use of platforms. I am surprised this is necessary as it is my experience that the regulator’s message has been consistent for some time now. But while this should not be needed, further clarity on this point is both welcome and necessary.

A few weeks ago, I had a call from a consultant at a wealth management firm, asking me to confirm that I believed the FSA would not object to an organisation using a single platform for all its clients. When I disagreed with such an interpretation of the FSA’s view, this was unwelcome.

I am encouraged that the FSA continues to use the format of demonstrating examples of what it regards as good and bad practice in the supporting appendix 1, although it would be really helpful if it could adopt this approach more widely.

To avoid any doubt, the new documents state that the FSA can see situations where an adviser might use a single platform for most of its clients as meeting the requirements on independence.

My interpretation of this – although perhaps it would be nice to see it in black and white – is that the regulator is saying most clients on a single platform, but not all, unless heavy filters are applied to ensure all clients have very similar characteristics.

The latest paper will provide much encouragement to organisations, such as Capita, that are building a range of tools to assist with the process of analysing platform suitability for individual clients.

Interestingly, though at the end of the appendices, the regulator identifies the potential increase in the cost to clients that may result where firms have adopted a plethora of different platforms rather than working “in a more focused and economic way”.

This is an important message. If the market adopts an approach of placing each individual client portfolio with a different platform, have we really moved forward from dealing with a range of packaged product providers?

The last thing I think anyone really wants is for platforms to become 21st century life offices, although some people have been suggesting that this is exactly what is happening.

I strongly believe this is not the best way forward for consumers or the industry and am encouraged by an indication of similar thinking at the FSA. This is a point on which I think it would be helpful if the regulator could deliver more clarity.

Given recent market suggestions that guided architecture or model portfolio tools would conflict with independence, a stance I vehemently disagree with, it is encouraging that the FSA seems to have raised no such concerns.

It is useful that the consultation paper stresses the importance of customer segmentation as part of any platform exercise. But to be fair, this is a view that seems to be pretty universally supported among IFAs.

Overall, I get the impression the regulator would prefer to see firms using a number of platforms, although it should make clear the steps advisers should take if they want to transact most of their business with a single platform.

The need for more powerful systems is often a consequence of regulation and this document is no exception.

Unless advisers want to be carrying lengthy calculations manually, they are going to need a powerful reporting tool to analyse customer suitability. This will be important not only in selecting a platform but also when comparing platforms with non-platform alternatives – a process that the paper makes clear is required.

This reiterates that the most important use of tools such as Comparator will be to help document specifically why a given platform represents the best option for a particular client.

Up until now, I have deliberately not expressed a public view on Comparator or any of the other similar tools on the market, as I see these as very much a work in progress. Conceptually, these tools have an important role to play but right now I do not see anything that can cover the whole process.

Capita probably has the fullest offering at present but key developments it has promised over the next year – comparisons between platform and non-platform products and pension transfer analysis to address the FSA pension switching rules – are crucial before it is possible to say it ticks all the right boxes.

Right now, to meet the full regulatory requirements, probably the best option an adviser could adopt would be a mix of the Capita service with the results also being run through elements of Selectapension. Even then, as the two are not designed to operate together, there would probably still be a need for some additional manipulation.

In recent months, I have become increasingly concerned at the amount of pension-switching business being transacted that involves transfers from life offices to platforms.

In the absence of dedicated software to automate this process, there must be an awful lot of advisers out there carrying out a large amount of manual calculations. As far as I am aware, there is no exemption from the pension-switching rules in respect of transfers to platforms. It is worth noting that the consultation paper appendix explicitly states that comparison with platforms is seen as good practice.

Once fully digested, I suspect these papers will be the subject of future columns on this page. However, my initial reaction, at least on the question of independence, is that the regulator has arrived at a refreshingly pragmatic solution.

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