How to get the due diligence right

This article is part of
Guide to platforms

How to get the due diligence right

The platform market in the UK is well established and since 2013 the assets under administration has doubled from £250bn to £500bn.

According to the Financial Conduct Authority’s interim Investment Platforms Market Study, adviser platforms collectively administer £311bn.

“There are over 20 adviser platforms in the market, so when it comes to due diligence reducing this down to a workable shortlist requires a bit of effort,” says Barry Neilson, chief customer officer at Nucleus.

“Each firm will have their own approach, but essentially advisers will want to be sure that the platform they’re recommending is right for their clients.

“It’s worth thinking about how often platform due diligence is carried out within your firm, and whether this is in proportion to how your business may be changing and growing.” 

At the forefront of advisers’ minds at the moment is Mifid II and, most specifically, the Product Intervention and Product Governance rules (PROD).

The rules, which are part of the regulator’s ‘target market’ initiative, say that for each product, investment firms must identify a potential target market and client type it would be most suitable for.

The Lang Cat’s consulting director, Steven Nelson, explains that a consistent theme among adviser firms when it comes to due diligence is the lack of clarity around what best practice looks like.

“The dominant theme at the moment is the lack of understanding of how best to comply with new PROD regulation. We reckon some meaningful, detailed examples would have helped adviser firms, but we are where we are,” he says.

“At a very high level, taking all regulatory obligations into account, if adviser firms are segmenting their client base (and the number of segments can be one if you target a specific demographic), mapping these to products and services deemed suitable – both platform and investment proposition – and documenting why this is to be the case, advisers will be on the front foot.”

Mr Nelson adds, however, that advisers should not be “fooled by those that say platforms are all the same”.

“Taking one area as an example, how to facilitate a withdrawal strategy, then there are scores of differences in core functionality from platform to platform. Researching, understanding and documenting these differences is the key to good due diligence,” he adds.

However, in its latest UK Adviser Platforms report, Platforum found that many firms view PROD as a ‘tick-box exercise’ that is not as diligent as what they have always done.

Andrew Ashwood, senior analyst at Platforum, says: “Despite pressure from the regulator, many firms don’t actively segment their clients, viewing PROD as a box-ticking exercise that’s weaker than what they’ve always done on an individual basis.”