Your Industry  

The regulator on picking a platform

This article is part of
Guide to platform due diligence

The FCA Conduct of Business rules require independent firms to ensure platforms present retail investment products ‘without bias.’

The City watchdog’s concerns over advisers using just one platform have constantly been highlighted, though it has not been prescriptive except to state that advisers should consider off-platfomr investments and ensure the needs of client segments are fully being met.

The FCA provides guidance on what they consider to be general ‘due diligence’ for platforms.

Article continues after advert

The watchdog outlines three areas to be mindful of in their One Minute Due Diligence guide:

1) Your business model.

2) Your customer.

3) Implications for your business.

More detail is contained in FCA policy statement PS13/1, which offers regulatory guidance about picking a platform.

For the platform market, Barry Neilson, business development director at Nucleus, says the FCA paper is probably the most significant regulatory paper it has seen in the last 10 years.

He says: “Evidencing regulatory compliance has in the past been primarily an issue for the platform as opposed to the advisory firm.

“However, as of April last year, the rules changed, so now a firm should no longer use a platform as part of a client recommendation unless it has satisfied itself that the platform complies with the relevant FCA policies.

“As an example, the regulator asks if the platform can present investment products without bias in relation to pricing, how they are displayed and selected on the platform or sit within the platform’s overall promotional approach, including website and literature.”

Mr Neilson points out that this has in effect placed a burden on advisers to check platforms regulatory compliance, for example, with rules which allow platforms to accept advertising in designated positions, but not to accept payments to generally promote one product over another.

“The regulator makes it clear that a firm should not use a platform service as part of a personal recommendation to a retail client in relation to a retail investment product unless it has satisfied itself that the platform service provider, and its associates, only receive remuneration for business carried out in the UK which is permitted by the rules.

“An adviser must ask the platform to confirm, and evidence, that it meets these requirements.”

The regulator has been consistent in its view for many years on use of a single platform when clients do not sit within a homogenised group, says Alistair Wilson, head of retail platform strategy at Zurich.

In addition, Mr Wilson says it is important advisers demonstrate and document their process for deciding on which platform they select for clients.

Posing questions about marketing payments should sit alongside other due diligence questions that advisers believe are important to their business and need to be asked, with the response documented, he adds.

Mr Wilson says: “Advisers now have to ask questions relating to marketing payments from a provider, and in my experience, more and more are.