Ben Hammond, investments director at Altus Consulting, says a major consideration for businesses considering absorbing all of the regulatory and compliance functions themselves is that they must have a nominated person to the Financial Conduct Authority within their business in order to do this.
Pros and cons
He says this is likely to mean extra staff cost, whether that comes from hiring a new person to fulfil the FCA obligation, or diverting an existing employee to perform that role and so having to hire a new person to take on their previous duties.
Polson says white labelling “shouldn’t be viewed as just an easy way to make an extra 10 basis points of revenue. An example I have seen is an advice firm might charge 30 basis points to the client for the platform, and pay out 15 basis points of that to the technology provider, thinking they can keep the extra 15 basis points.
"But a firm we know of, run by smart people, found that after all of that, they were only really making 2 basis points for themselves, and it seems like a lot of work for two basis points.”
Law says that some businesses “benefit hugely” from white labelling, particularly if they have the scale to make the small savings worthwhile, but the bulk of the business his company does is with advice businesses that are seeking to not have the regulatory and compliance function performed by themselves.
Hammond’s view is that advice businesses with assets under management of £200mn or more may have the capacity to benefit from an approach that involves outsourcing the regulatory responsibility.
While businesses below that are likely to be more suited to a more traditional approach, where the technology provider also acts as the regulated entity, and businesses with assets in the range of a “few billion” may choose to use a provider which requires the advice firm to assume full regulatory responsibility.
Polson says there are many different versions of this approach available, with advice businesses choosing to do some elements and not others, but says it is vital that an advice business is very clear on “who is responsible for the client money. If something happens and they have got that wrong, then the consequences are severe”.
One of the functions advisers can choose for themselves is to run their own portal, something which Fundment's Abdul says is quite popular.
He says: “Some advisers want to do this because it means all of the tech is integrated. Some like doing it because they enjoy technology, some like doing it because they believe it improves the experience of their client. We try to be as bespoke as possible.”