Why re-platforming and due diligence is a hot topic

I am finding more and more advisers asking me if Novia has any plans to embark on such an apparently expensive and challenging exercise.

The interest has undoubtedly been driven by the numerous headlines in the media in recent months, horrific costs involved and even exits from the platform market.

The only reason one would consider re-platforming is because the current system either constrains the client proposition and has fallen behind the competition or you cannot take advantage of efficiency savings driven by improved technology.

This is very important given the competitive nature of our market. Of course the irony of this is that the huge spends involved tend to make this a zero-sum game at best.

Whenever I get asked about due diligence my starting point is always the same and that is to focus on what the adviser’s client proposition (contract once the client starts paying a fee) is and then choose the platform that best enables delivery of it.

It isn’t enough to say ‘we have deep pockets and we will be around no matter what happens’ because that clearly isn’t the case.

For example, if the client proposition is to outsource investment decisions to a DFM it’s vital that the platform provides access to the widest possible range of investment instruments so that the money manager can deploy his best ideas.

With one frequently used DFM we see as much as a 30 per cent difference of selected investments across platforms due to the narrow range provided.

I’m not sure clients would be so happy paying for the DFM’s second best thinking? Similarly, does the administrator aggregate trades and offer fractional trading on the increasingly commonly used ETF instruments?

If it does not, any advantages derived through cost savings will be lost in excessive trading fees and the model will not be suitable for regular investment or regular withdrawal.

There are obviously other aspects to consider in the client centric assessment but looking at the problem from a more strategic angle, one big question that is being increasingly asked is, will the platform still be around if I move my clients over to it?

One obvious point is on the topic of financial strength, and for that the best solution is to look for the ratings provided by a ratings agency.

These provide a more in-depth view of the financial health of the platform, having pored over accounts and quizzed management on strategy and the direction the business is heading in.

But the other point advisers should think carefully about is to assess what plans the platform has to replace its technology, for this factor alone has been enough to drive some major financial institutions to exit the market.

It isn’t enough to say ‘we have deep pockets and we will be around no matter what happens’ because that clearly isn’t the case and indeed no shareholder can or will give a guarantee to support a loss making business other than for the very short term.

Management is dreaming if it thinks a shareholder will continue to support them as they merrily burn, often obscene amounts of cash, ad infinitum.

You may ask why this matters to advisers as the clients’ money is not at risk but the impact on advisers will be severe. Poor service levels is the obvious one, which reflects badly on the adviser, eroding adviser margins.

Finally the enormous cost to the adviser of moving to a new administrator in the event that the platform’s shareholders say ‘enough is enough’ and pull out of the market or the proposition, fails to match the aspirations of advisers and their clients.

I guess the best question is, does my platform enable or constrain?

Paul Boston is sales director for Novia