You could argue that there has never been a better time to adopt an investment platform. Evolving customer needs and changing regulation within the financial advice market are all encouraging advisers to review and revise their business models.
Platforms today deliver enormous benefits to both clients and advisers, through a wide investment choice, sophisticated portfolio planning tools and the ability to better review and maintain investment portfolios in one place – incidentally all these benefits should come at no extra cost to the client when compared with the more traditional way of investing their money.
The decision to use a platform will be an easy one for many advisers to make but choosing an appropriate platform that answers the adviser’s business needs and the client’s investment needs can be more difficult. In fact, when it comes to selecting a platform, advisers may find themselves bombarded with opinions and advice from colleagues, providers and “experts” on the best platform to use.
When selecting a platform, it is important to remember that the client’s needs must come before the adviser’s.
The FSA has been clear that advisers must conduct a comprehensive fact-find on a platform before recommending it to a client.
The FSA factsheet, Platforms: Using Fund Supermarkets and Wraps, states: “The suitability of any platform will depend upon the client’s particular circumstances and requirements. Irrespective of any strategic firm decisions to use a platform, you must still consider whether a platform is suitable and meets each client’s needs before recommending it.”
In its recent platform paper, the FSA stated that due to the unacceptable practices identified in the thematic review of investment advice and platforms, platform advice will form a supervisory priority in future and that tough regulatory action will be taken where appropriate. Advisers will have to make sure their platform recommendations are based on sound reasons, backed up by evidence, and that the platforms they use are up to the task.
This due-diligence process must be thorough and documented and the adviser must be able to fully explain why the selected platform is right for the client. This is no easy task.
Because the suitability of a platform must be reviewed for each client, an adviser must learn to switch off the noise made by all other influencers and review the market themselves, thinking only of their own opinion and of the specific needs to their client.
Where does an adviser start with the due-diligence process? What questions should be asked? Where can the answers be found? How can the information be pulled together in order to make a robust comparison of what’s available in the market?
The FSA’s platform factsheet outlines the nine key elements that an adviser needs to consider when selecting a platform:
- The platform provider terms and conditions
- Fund and wrapper range
- Range of assets
- Additional tools
- Support services
There are a number of questions that advisers could ask within each of these key areas.
When examining the platform provider, an adviser might want to know how the platform is financed, how financially secure the platform is and if the platform owns its own technology. If the adviser is interested in the provider’s terms and conditions, they may ask about the company’s complaint procedure and what the platform’s best execution policy is.
Charges will be an area of interest for most advisers and clients. Price is not everything but it is a key element when selecting platforms and advisers need to at least understand any price differentials before they even attempt to justify using a more expensive platform.
The key consideration for the client and adviser will be – does this platform represent good value for money?
When conducting platform due diligence, the adviser may want to ask the platform provider to describe its charging structure. If the structure is easy to explain, it is more likely that the client will be able to understand the associated costs of the platform.
Charging models differ from provider to provider and the end cost to the client is often influenced by how successfully the provider has negotiated a favourable price with fund managers.
Without a platform cost comparison, it is virtually impossible to determine the value for money that a platform offers. There are tools available in the marketplace that can help compare the costs of platforms.
The funds, asset classes and wrappers available on a platform should also be examined as part of the due-diligence process.
Advisers will need to find a platform that offers the right amount of choice to the client. Advisers may want to ask how the platform selects the funds that are offered because some platforms simply add funds by demand while others will conduct their own due diligence on funds against set criteria before deciding to make them available.
When selecting a platform, the key is to find a way to filter out the noise and focus in on the information
The functionality of the platform and the available tools will need consideration. Many platforms provide tools that will help the adviser draw together the client information needed when giving investment advice.
The tools that platforms make available vary greatly and some propositions are limited by the absence of key tools or because tools are only available at extra cost. However, the key differentiating factor is the extent to which tools are integrated and use common underlying methodology.
Although the tools available on many platforms will establish the investor’s attitude to investment risk, model the asset allocation and then help select appropriate funds, these three steps need to be linked together so that the resulting portfolio matches the investor’s requirements over time and so that it is possible to maintain a centralised audit trail.
Accessibility and support services should also be examined. Knowing which back-office system the platform can integrate with and the amount of business that can be done online will help many advisers assess whether or not the platform is able to integrate well with their own business model.
In addition, it might be useful to find out about services such as online and phone support provided by the platform as these can improve the overall service experience both for the adviser and the client.
When selecting a platform, the key is to find a way to filter out the noise and focus in on the information.
Opinions and recommendations do matter but the end result must be that the client is able to place their business with a platform that meets their specific needs.
Ultimately, the only opinions that matter will be those of the adviser and the client and making the right platform decision offers tremendous benefits to both parties.