Long ReadMar 2 2023

Consumer duty could change the adviser/platform relationship

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Consumer duty could change the adviser/platform relationship
Consumer duty creates new obligations for financial advisers. (Rawpixel/Envato)

Advisers receive all sorts of missives from providers, but one day in February a London-based adviser saw red when a particular email hit his inbox.

It was from his platform provider and contained the precise sort of request that causes advisers to threaten to remove their clients from the platform.

As it turned out, the platform was in the right and was complying with obligations under the consumer duty, one consequence of which is that the relationship between advisers and their platform has been altered forever. 

The email that provoked the adviser was from a representative of Abrdn's Wrap platform, and – as seen by FTAdviser – contained an attachment showing all the adviser’s clients with more than 50 per cent of their portfolio in cash. 

The platform wanted an explanation for this and set the adviser a deadline of March 3 to provide it; furthermore, if the deadline were not met, the platform said it platform would contact the adviser’s clients directly, which prompted the adviser to immediately consider moving his business elsewhere.   

Changing the relationship

However, Mike Barrett, consulting director at The Lang Cat, says that under the consumer duty the adviser is obliged to meet the platform's request, saying this process "fundamentally alters the relationship between the adviser and the platform.” 

Barrett adds: “The Financial Conduct Authority has been very clear with its expectations under consumer duty. All firms must act to deliver good outcomes to customers and to comply with the cross-cutting rules. In particular, all firms have a role to play to avoid foreseeable harms.”

Platforms will need to ensure these communications to advisers are clearly explaining their concerns and rationale.Mike Barrett, The Lang Cat

From the adviser's perspective, his response was that there is a variety of valid reasons why clients may have a large holding in cash at any one time, including: “Perhaps it’s a small fund that is going to be entirely withdrawn shortly; perhaps a client is ultra-cautious, sometimes it is a trading strategy (seeking to profit on a FTSE that stands at an all-time high); perhaps a client has recently been widowed or suffered ill-health and needs time to adjust, without concerns about investment performance.

"In short, when our clients do hold cash, it is deliberate and there are myriad reasons for doing so.” 

However, Barrett adds that while the financial adviser will have the highest level of responsibility for a client outcome and suitability, “providers (platforms, asset managers etc) are also required to take steps to avoid foreseeable harms where they believe they might occur.

"If the platform believes, for example, clients investing in cash for the long term might not be getting a good outcome, consumer duty requires them to take action. Platforms will need to ensure these communications to advisers are clearly explaining their concerns and rationale.”