Due diligence when picking a platform

The objective of the first stage of due diligence is to eliminate any platforms that will not allow advisers to implement the fundamental parts of their client proposition, says Barry Neilson, business development director at Nucleus.

As a part of this, advisers will in particular need to define particular client segments they deal with and ensure that their given selection of platforms can meet needs in each case. Advisers will also need to be aware where inevitably blind spots are, which they may need to meet off-platform.

If a platform cannot deliver what you need to meet the service agreement you have with particular clients there is no point allocating the time to analysis of other aspects, Mr Neilson states.

He says: “The adviser needs to define, in detail, what their requirements of the platform are. To do this, the adviser needs to be really clear about their client proposition and what they need the platform technology to deliver to service their clients.

“This will include an understanding of their client segments and how these have different needs that may have different platform requirements. So this type of research needs to be carried out first.”

There is certainly no fixed approach to picking a platform but Mr Neilson says there are typically three ways initial due diligence is carried out:

1) DIY: send a questionnaire to platforms.

2) Use a third party on a consultancy or project basis.

3) Use on online tool.

Often, Mr Neilson says a mixture of the three is employed. However, at the end of these methods, Mr Neilson says a face-to-face element should be considered, which could also include a site visit to the platform HQ.

He says: “Nothing beats seeing the whites of the CEO or CFO’s eyes and asking detailed questions about the platform’s corporate position.”

Concentrating the questions around client needs at such a meeting will support advisers decision making.

Broadly speaking, Alistair Wilson, head of retail platform strategy at Zurich, says there are three important areas to focus on at a meeting with a platform:

1) Commitment to the market.

2) Looking through to the balance sheet to assess financial strength.

3) Footprint of the provider and on the ground support.

Whatever approach to due diligence is taken, Mr Wilson says the adviser should consider themselves, their business and most importantly their clients in the process, to allow them to establish:

• why a particular platform is selected over another;

• their reasoning why their chosen platform is good for specific segments of clients;

• what are the benefits it delivers; and

• their understanding of the impact the platform will have on the client.

Advisers will likely have a mix of clients with different needs.

When picking a platform, Mr Wilson says they should consider how the platforms chosen support these needs and they must drill down into the detail.

For example, he says advisers should look at if a segmented client offering can be delivered that allows advisers to add value in different areas for different types of clients. This can include elements such as frequency of reports provided or client access to accounts.

As a minimum, Chris Smeaton, director of marketing at James Hay, says advisers should be asking a range of questions on the following topics:

1) Background of platform service provider and position in group.

2) Stability, profitability and financial strength.

3) Fees and charges.

4) Products and services.

5) Underlying technology.

6) Platform facilities and functionality.

7) Service levels.

8) Resources.

9) Implementation.

10) Risk.

11) Capital adequacy.

12) Business continuity.

When assessing a platform’s long-term commitment in the industry, Stephen Wynne-Jones, head of marketing at Cofunds, says it is also important for adviser firms to understand the scalability of a platform.