Your IndustryJan 23 2014

Adviser due diligence responsibilities

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A key due diligence point for advisers is to ask whether the unbundled charging structures are compliant with both new platform rules coming into effect in April 2014.

In a controversial detail of the new rules, advisers have been made responsible for checking whether the pricing model of a platform they are intending to place client assets with is in accordance with the revised requirements.

This would include, for example, an adviser interrogating whether payments to a platform from a fund group ostensibly for advertising, which are still allowed under the new rules, are being used for the intended purposes and are not simply a rebranded kick-back.

If the platform’s pricing is not compliant, Michael Barrett, platform marketing manager at Skandia, says advisers need to find out when the wrap provider will meet the new regulatory requirements.

Terry Huddart, technical communications manager at Nucleus, says despite the numerous new rules coming in advisers should not expect to see a great deal of platform price changes in the next few years.

However Mr Huddart says advisers with clients on unbundled platform legacy books need to be mindful of when it will be transferred to an explicit basis in the run up to 2016.

Mr Huddart says: “I don’t believe there are any genuine operational barriers to this happening now. Clients paying more in the bundled version is just wrong in my opinion.”

Bill Vasilieff, chief executive of Novia, warns against the current huge focus on price in the market for motivating an adviser to switch platforms, arguing that this can disguise the true value that clients and advisers are getting from their platforms.

He says the predicted price war between platforms and fund managers has so far not materialised as demonstrated by the failure of super-clean share classes to get off the ground in many cases.

Mr Vasilieff says: “Instead we are seeing a move to transparency which can only be a good thing for the industry.

“Platforms on occasion can and do adjust their pricing models adapting to market forces and demand, most commonly to secure large business cases.”