Investments  

Using platforms wisely

This article is part of
Discretionary Fund Management - October 2014

As the cost of running an advisory business escalates, many advisers are caught between a rock and a hard place.

On top of servicing existing clients and meeting the requirements of the regulator, they also need to grow their businesses.

When it comes to encouraging current clients to transact more business, or indeed prospecting for new clients, making better use of platforms can help.

Many financial advisers already use platforms, but often this is seen as a secondary consideration. For smaller advisers, though, smarter use of platforms can free up time to engage with both existing clients and new ones.

This is particularly true for small and medium-sized advisers, who can use platforms as more of a transactional mechanism for clients with less than £150,000 who may have a one-off requirement, such as setting up a self-invested personal pension (Sipp) or dealing with a small inheritance.

In many of these circumstances, the use of platforms as part of the solution is a more cost-effective tool, as it provides much of the administrative reporting and access to fund manager reviews that eat up a lot of an adviser’s time.

The use of model portfolios can speed this up further, as much of the reporting can be used as an automatic marketing tool. Such a tool can be sent out to clients, with ideas that may prompt further engagement.

Suddenly, handling existing small clients or taking on smaller clients becomes more economical.

Of course, advisers need to be able to justify to the regulator why they use a particular platform or platforms. It is an area that many advisers do not find particularly easy to navigate.

From a commercial perspective, there is nothing wrong with the decision to use a platform service, provided the type of client and proposition fit.

The key point here is that the actual selection of the platform or platforms should be based on the client’s needs rather than the adviser’s. It’s an important distinction, which is why feedback and real information from the client’s perspective can be helpful in identifying the right platform choice.

The ability of the adviser to demonstrate the value of using a platform is an equally important issue that regulators are keen for the client to be clear on.

When smaller pots of money are involved, there is often the temptation to reduce levels of communication to the bare minimum, for obvious reasons.

This is an area where platforms come into their own. So, in addition to the broader issues of transparency and cost – not to mention service – advisers should consider fund choice, cost of switching, and the creation of model portfolios that reflect clients’ investment philosophies and risk profiles. The reporting nature of platforms means that clients can be made aware of facilities should they wish to take them up in the most efficient, cost-effective way.