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Set up audit trail to check for conflicts

Companies using platforms should look at introducing a conflicts of interest policy to provide an audit trail for the FSA, according to Aifa.

The recommendation was made in Aifa’s platform due diligence guide launched last week.

The FSA cited a failure to manage conflicts of interest appropriately when it fined Moneywise IFA £19,600 over the investment advice it gave to clients using platforms and discretionary portfolios.

Aifa says: “The FSA has made it clear that advisers must manage conflicts of interest in platform selection. This can be difficult. For example, platforms can help to generate recurring income, which gives a financial incentive to the businessowners to increase their use.”

It notes that advisers should make sure client interests are put ahead of easier administration and profitability before choosing to use a platform.

For those IFAs already using a platform, Aifa recommends firms put in place a business policy dealing with conflicts of interest to make sure these are declared to clients. It suggests an investment committee or best practice officer might be well placed to ensure conflicts of interest are managed, particularly where inducements are offered.

Rory Percival, an associate from the FSA’s pensions and investments team, says specific conflicts of interest can exist within individual firms.

But he adds there are also more generic conflicts of interest associated with choosing a platform where there are explicit benefits for a firm if they adopt a platform, such as higher business value.

He says: “With a lot of firms that we visited during our platform thematic review in March, where there were conflicts of interests firms would disclose them, but then felt that was all they had to do. In reality, advisers have to manage those conflicts of interest over time.”


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