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Ticking all the boxes

Dear PAT, is my due diligence up to speed in light of FSA final guidance?

What an eventful June we had. Amid the diamond jubilee celebrations we also received finalised guidance from the FSA on independent and restricted advice and a consultation paper on platforms.

The FSA is sticking to its guns and proposing the banning of platform rebates. Most advisers welcome this and it is a done deal. The regulator is also proposing to ban cash rebates to clients in favour of unit rebates. I have received mixed comments in response to this and would like to know what advisers really feel.

Is it up to the platforms to ensure systems clearly define how the rebate has affected the investment and what does this look like in outputreporting to clients? Will unit rebates be more difficult to explain to clients than cash rebates?

Most advisers have told me they have read bits of the guidance paper and are waiting to see what affect this will have on the platform provider sector and who will be the winner and losers. This has been a catalyst for some advisers in conducting platform selection for their businesses or reviewing providers for due diligence purposes.

Fear of the FSA is very apparent for many IFAs and reassurance that they have ticked enough boxes is on most people’s minds. Conducting satisfactory platform due diligence, and how you achieve it, is important and this latest FSA publication should not give IFAs an excuse to delay. Burying our heads in the sand it not a good idea – awareness is vital and in a developing market it is important to remain aware of what is going on as we anticipate a lot of noise in the playground.

The recent FSA paper on centralised investment propositions and replace ment business is still causing controversy over what is meant by ‘a contractual agreement’ where firms are outsourcing investment management.

In my view, IFAs are required to enter into an agreement with both the platform and DFM where the IFA does not have discretionary permissions – this agreement is disclosed and agreed by clients. To try and clarify which platforms have a tripartite agreement, I have asked all platform providers to explain how the tripartite agreement works – this information can be found in my online platform analysis tool.

Although the industry press seems to have made a big deal about this, most advisers I speak to are not overly concerned about these implications. The overriding message is: “Our clients sign an agreement with us and we sign an agreement with the platform. It is pretty clear.”

I have been helping a few advisers with their due diligence and summarising the process into a clear and concise document.

I get the feeling from advisers they believe this document needs to be War and Peace, “because that is what the FSA wants”, but they are mistaken – platform due diligence should tell the story.

The Platforum analysis tool has been developed purely to help adviser firms with due diligence. I have all the information you can use to build your shortlisted platforms, including independent analysis of the market, and I will also help you draft the summary document.

It is now time for me to reflect on what advisers have been telling me about their concerns and challenges for the next six months. Advisers are at different stages in getting ready for the RDR and there is still a lot of segmentation, service propositions and transitioning left to do.

pat@theplatforum.com

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