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Challenging status quo bias

This article is part of
Guide to due diligence

Challenging status quo bias

David Heffron, head of financial services regulation at Pinsent Masons, says firms should take care to ensure recommendations are made in the best interests of their clients and not their firm.

He says firms who are finding their recommendations are concentrated among a small number of products and providers should seek to understand and challenge the basis for those recommendations.

Mr Heffron says firms with a high concentration of recommendations should consider actively researching alternatives as part of a “culture of challenge”.

But other experts FTAdviser spoke to say if the clients have a very high degree of commonality in terms of objectives and associated requirements and your research and due diligence has identified a very good solution, why would there be a need to spread business among a greater number of providers?

Keith Richards, chief executive of the Personal Finance Society, says: “By implication you would be spreading your business utilising sub-optimal solutions.

“However, you must be sure on a client-by-client basis and not simply generalise because they fit a ‘segmentation’ exercise.

“In simple terms, if you are providing the most suitable solution, there is no need for change or concern.”

Ben Wright, head of technical services and research for Tenet, agrees with Mr Richards.

Mr Wright says it is more important to demonstrate why you have selected the providers you are using.

He says quality rather than quantity is probably the biggest factor here and research and due diligence is all about having confidence in the quality of the product to meet the client needs.

Mr Wright says: “The extent of research may be depend on whether the adviser is operating a restricted or independent model – either way the recommended product/fund must be suitable.

“Research is only the first stage, suitability for the individual client is the key issue.

“It is never appropriate for a firm to base their needs ahead of the client needs. Firms should take steps to manage these conflicts of interest as evidence of their customer focussed culture.”

Ultimately as a firm’s recommendations should be suitable for individual clients, Richard Nuttall, head of compliance policy at Simplybiz, says the spread of the firm’s recommendations would depend on the make up of their client bank.

If in any doubt Mr Nuttall says the firm should carry out relevant due diligence and research on each provider and, if it appears that a few providers are getting the bulk of the business, this should be challenged to ensure it meets individual clients’ needs.

Sheriar Bradbury, managing director of Bradbury Hamilton, says clients of a different size and with different objectives will not always be suited to the same platforms as these all have their own ideal clients and have been priced accordingly.