Adviser-owned wrap Nucleus has published a white paper highlighting the importance of “astute due diligence” in platform selection ahead of new rules which come into force in April 2014.
From 6 April this year, onus will fall on advisory firms to ensure the platforms they use adhere to the Financial Conduct Authority’s policy statement PS13/1, including new rules on platform sustainability.
In the white paper published today (29 January), Nucleus warned that research is not due diligence, and added that people working in sales can be “guilty of giving positive answers to anything you ask”.
The paper said a key due diligence objective should be for advisers to get “underneath the spin” of platform providers and consider a “phased approach” to due diligence.
The most efficient order, according to Nucleus, is to first examine the client proposition and consider whether the platform can support it. Advisers can then consider how the platform meets its regulatory obligations.
Next they should determine the sustainability of the business model. Service quality and relationship management should then be considered, followed by a review of the tools and functionality of the platform. A look at pricing should only come once the first four phases are complete.
The paper said: “There are many things that you can see for yourself, such as the platform functionally, but others where you may be expected to rely on ‘marketing speak‘.
“Although that’s never been acceptable, from 6 April 2014 it’s even less so. As the regulator has now placed a specific onus on advisers to evidence that their chosen platforms are operating compliantly, it’s not an understatement to say that platform due diligence has just got much more serious.”
As well as offering general guidance on how the rule changes will affect advisers, the white paper also recommends advisers adopt a phased approach ahead of the launch, its aim being to help with the adoption of the new PS13/1 adviser obligations before 6 April.
The paper contains further questions that advisers can use to eliminate platforms that will not meet a client’s proposition and others that reflect the current legislative and market environments.
David Ferguson, Nucleus chief executive, said: “This is a major change and one which shifts the burden of responsibility firmly onto adviser firms who probably need to become more cynical and searching of their potential partners.
“Essentially the need to stop believing the sales spin and cut to the substance. Sure it’s hard work but it will pay huge dividends as the platform winners will obviously be those open enough to respect the process and progressive enough to know who’s calling the shots.”
