Retaining independence in the age of due diligence

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Evolution of Platforms - March 2014

From 6 April 2014, advisers’ lives are going to be a little harder when it will fall on them to conduct due diligence of the platforms they use to ensure they comply with new regulations governing charges and rebates.

Advisers have always had to do due diligence - and this obligation was of course formalised and strengthened under the Retail Distribution Review. Under the rules that ushered in the platform rebnate ban, however, the regulator also laid policing of the payment rules at advisers’ doors.

Recently we have seen Nucleus and Standard Life, among others, come out with tools and advice to help advisers meet their new obligations. Nucleus published a white paper warning advisers that platform due diligence is more than research; Standard Life introduced a “bespoke” due diligence service for its wrap.

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While providers can only be applauded for offering such help, for many advisers it remains unclear just how much difference the new requirement to ensure platforms are compliant before they place business with them will make to their lives.

Not a level playing field

Outlining how he thinks the new rules will play out in practice, Declan McAndrew, head of investment research at national advisory group Foster Denovo, which supports both independent and restricted advice, says advisers need to ensure platforms are “fit for purpose”.

“Today’s adviser needs to be clear about what a particular platform does, how sustainable is their model and how they despatch their regulatory obligations.”

Philip Martin, marketing manager at Openwork, adds advisers need to ascertain what sort of functionality the platform has and how ‘robust’ it is, as well as assess the platform owner and specifically “how committed they are to the marketplace”.

He says: “Does that platform [have] size and scale or could it be vulnerable?

“Does it have access to the assets we want it to have access to, which is not necessarily the same as how many funds does it have access to? If so, at what price in a clean environment, so will customers be able to access the best deal?

“What sort of backing do they have in terms of administration, how manual is that process or is it automated?

“It’s all these things that you will be identifying in the market place to come up with some sort of conclusion.”

If all of this sounds like the burden placed on advisers is going to increase, importantly it seems this burden will not be as heavy for restricted advice firms or those firms that are appointed representatives, whether restricted or otherwise.

Mr Martin says Openwork, as a restricted network, creates a panel for its advisers to use, which means it undertakes “due diligence centrally, rather than provide support to advisers to do it individually”.

Foster Denovo works with both restricted and independent advisers and has a central platform policy that applies to both. Mr McAndrew adds its ‘advice policy committee’ reads through the business rules and then formulates the policy,“ensuring the regulatory obligations are consistent across the company”.