Since the beginning of the implementation of the RDR in December 2012, there has been a steady rise in the use of platforms, with the more established platform providers reporting figures that show an average 100 per cent rise in funds under management between April 2013 and 2014.
There are a number of reasons to which the increase in advisers using platforms could be attributed: the end to traditional commission payment caused by the RDR; the fact that platforms are now tried and tested, rather than new technology or the range of services and pre-sales tools now available from many platform providers, which reduce the time needed to be spent on administration.
But in order to ensure you are meeting the Financial Conduct Authority’s (FCA) requirements for due diligence, the following areas will need to be covered and documented:
Internally
• Have you conducted your business review?
• Are you happy with your investment strategy and philosophy?
• Do you have a robust, repeatable and independent way of assessing client attitude to risk?
• How is your client base segmented? What will your platform proposition need to do in order to cater to the different client segments?
• Have you assessed the impact upon your business in the areas of IT, compliance and training that will be caused by the implementation of a platform, and sufficiently prepared for this impact?
• Have you planned how to communicate any changes and cost implications to your affected clients?
• Will you need to hold face-to-face meetings? Have you prepared new service proposition documentation?
Market research
When reviewing platforms, you will also need to consider the following:
• Online functionality
• Product and fund range
• Service support
• Available help and help lines
• Charges
• Pre-sales material and tools available
• White-labelling of portal. Do you understand the limitations of the platform?
This is particularly important for independent advisers, as it is rare to find a platform that covers all retail investment products.
Due diligence of platform shortlist
• You need assurance that you will receive a high level of support from the provider, both during the implementation stage and on an ongoing basis.
• Does the platform have a solid and reliable infrastructure in place when it comes to IT, operations and business continuity? However complex and impressive the operating system behind them, platforms are an online solution and, as such, are as susceptible to the same levels of both human and mechanical error as any other technology system. In the very unlikely event that there is an issue, you need to have an understanding of what the provider will do to both prevent and, in the worst-case scenario, rectify the situation.
• You will need to check that the provider stands up to a rigorous financial assessment. You could either opt to get a credit rating of the business, or view a copy of its accounts on the Companies House website.
lWhat is the provider’s approach to clean share classes? And will this have any impact on the costs to the client?
• Has the platform moved to an explicit charging structure and passed any rebates from providers in the form of cash (within the de minimis limits) or in the form of additional units.
As you would expect, the upturn in popularity of platforms has also instigated an upturn in interest from the FCA. The regulator’s guidance paper in 2013 gave a good indication of what its areas of focus would be, its major concerns and a broad picture of what it was expecting from advisers. It will necessitate some work from advisers to stay compliant.
Gary Kershaw is group compliance director at SimplyBiz
Key issues: FCA and platforms
Gary Kershaw from SimplyBiz notes that in the Financial Conduct Authority’s guidance paper on platform-related advice, it raised three ‘key issues to consider when giving advice on platforms’, which are as follows:
1. The client incurred additional costs without good reason: Advisers need to consider all costs, including the combined cost of funds, products, platform and advice (initial and ongoing).
2. Investments did not match the client’s attitude to risk (ATR): A recommendation must be suitable for the client given their ATR and personal and financial circumstances. Advisers are also responsible for the advice when using financial planning tools provided by the platform.
3. The advice led to lost benefits/guarantees or a financial loss for switched investment without good reason: Advisers must review existing investments in the light of the client’s circumstances, needs and objectives and only recommend a switch when it is in the client’s best interest. There have to be clear benefits for the client, not the firm.
Platform charges: the sunset clause
In its paper on ‘Payments to platform service providers and cash rebates from providers to consumers’, the FCA outlines the details of when platform charges become payable.
It states that initially, it had consulted on rules that would require all platforms to charge for all business from December 31 2013, regardless of when business was placed.
But it recognises this was “potentially tax inefficient”, while moving all assets to a platform-charging basis within a year from the confirmation of the final rules would have been “operationally challenging”.
Instead, it states: “We are therefore extending the timescale for when a platform charge should become payable for legacy business until April 6 2016.
“To avoid operational challenges for platforms, as well as the potential for any undesirable tax consequences for consumers, we have included a transitional provision allowing platforms to continue to retain legacy payments from product providers for existing business on the platform, subject to a two-year sunset clause (expiring on April 5 2016).”
