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Is your platform choice fit for purpose?

Platforms increasingly want to take on the role of guiding advisers toward a smaller number of funds and that, says Tim Sargisson, will clearly represent a challenge for whole-of-market practitioners

My previous blog highlighted the Financial Conduct Authority’s (FCA) concerns about platforms. “We will conduct a market study to explore how ‘direct to consumer’ and intermediated investment platforms compete to win new and retain existing customers” – this was the pull-out headline from the regulator’s Business Plan 2017/18.

First of all what do we mean when we use the expression ‘platform?’ The CII J11 Study text sums it all up quite nicely in one paragraph:

“Platforms are a well-established feature of the financial planning landscape and are a core part of many advisory propositions. Advisers are attracted by platforms’ transparency, their wide investment range, the control they give advisers over clients’ portfolios and the access to tools and services that support the advisory process. In a time of falling margins and rising costs, platforms offer a way to facilitate robust, scalable and repeatable processes in an advisory practice.”

This sounds to me like a very desirable set of outcomes indeed and could almost have been written by the FCA itself. The regulator’s close look will include an examination of complex charging structures, whether platforms’ investment tools enable effective choice and whether platforms have the incentives and ability to put pressure on asset management charges.

The key outcome the FCA review will seek to identify is whether “platforms enable retail investors to access investment products that offer value for money”. I believe the answer to that question is “Yes”! Many platforms do indeed offer value for money, but some may need to up their game in light of this regulatory study.

There are two sides to every coin, however, and there is of course also the adviser to consider in a process determining whether selection of a platform provider is ‘fit for purpose’. In posing an answer to this issue the FCA’s thematic review on research and due diligence of products and services (TR16/1) in 2016 highlighted that poor-quality due diligence on the part of the adviser had been identified as one of three root causes of poor consumer outcomes.

Defaqto, for example, researches 61 propositions from 47 providers, of which 41 are marketed to advisers, or to advisers and consumers. When undertaking due diligence, it has to be meaningful and relevant and good due diligence is time-consuming.

Is it reasonable to suppose that an adviser is going to research every platform out there and decide the most appropriate one for each client? By the same token, is it reasonable to suppose that having two to three platforms will be suitable for every client?

Desire to avoid change

Of concern to the FCA was the tendency for advisers to want to leave things as they are. It is this desire to avoid change that was the explanation given for inconsistent and insufficient research, and a noted tendency to select criteria that would ensure the existing platform was ‘shoe-horned’ in as the preferred platform – a practice described as ‘retro-fitting’.

The approach of platforms has been to complement this process by offering access to ever larger numbers of funds to satisfy advisers’ whole-of-market aspirations. This expansion of both the range and the type of funds has weakened their position in their dealings with investment houses.

In that, it has clearly hindered their ability to negotiate better deals on costs. There are a substantial 264 funds in the UK All Companies Sector alone. Direct-to-consumer propositions look to narrow the choice with their ‘select lists’ and there is a trend to cut their length. The ‘HL Wealth 150′ is well short of 150 and Fidelity has recently cut its own list to 50.

Increasingly platforms want to take on the role of guiding advisers toward a smaller number of funds and hope to secure institutional-like pricing for those funds. That is clearly a change of direction and a challenge for a whole-of-market adviser.

Published on 20th June 2017

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