InvestmentsNov 14 2016

Providers must raise their level of service

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Providers must raise their level of service

While these two changes are not the frenzy of consolidation that other market commentators had predicted, they do raise questions for the advisers and customers concerned, as well as the market in general. 

The future of the platform market is not as simple as saying, ‘30 platforms are too many for the market to sustain, so it will move to around 10 providers’. 

It is more nuanced than that, with every provider needing to be assessed on their own merit and strategic direction. 

For advisers this is not an easy task. Financial strength and scale form part of this assessment. But as the recent changes have shown it is more likely to be commitment to the market, or lack of it, that is the catalyst to a merger or acquisition. 

When conducting platform due diligence, the two overriding considerations are: ‘Is this platform a safe home for my client’s assets?’ and ‘Are they able to provide me with the level of service I need to be able to deliver my own service proposition to the client?’ 

Commitment to the market cuts to the heart of both areas, but by breaking it down into these two categories advisers can develop a process that will ensure the right level of assessment is made as to a provider’s suitability, with clear selection criteria and measurements in place. 

This is not about taking a deep forensic view of a provider’s accounts, it is about considering what you and your clients need from a platform, and ensuring a suitable recommendation is then made. 

Safe custody of the client’s assets is probably top of most adviser considerations when conducting due diligence. 

The financial strength and commitment to market of a provider will have a bearing on this. However, the reality is that in most instances there is little danger of catastrophic client impact.

If a provider decides to exit the market and is acquired by a rival, then little changes in terms of the security of the client’s assets. In fact, with the ownership issues now being resolved you could argue that things may well have improved. Even if there is a distressed exit, the regulatory protection is strong. 

Irrespective of their financial strength, all platform providers are required to have an exit plan in place. This plan has to demonstrate how they would treat customers fairly in the event of an exit, and capital adequacy is set aside to fund this plan.

The worst-case scenario is that the client will be forced to move to another platform, but it is unlikely they would be disadvantaged by the move, or incur any costs. 

Of more concern to advisers should be the level of service being provided by their platform of choice. This is where the commitment to market, or lack of it, will be felt by the advisers, their administrators and paraplanners and their customers. 

The level of service is also where clear selection criteria and measures can be put in place by the adviser firm to ensure a suitable selection.

There is no point in asking a provider if they are committed to the market as you are only ever going to get one answer. But whether or not they are committed to providing you with good service is something you can benchmark and assess.

When working on platform selection, adviser firms should consider what level of service they require from a platform and document these requirements. 

If the commitment to market is starting to waiver, then it is highly likely that the service will suffer. 

If the service levels start to deteriorate then this should raise questions, and by having set criteria for service in place, advisers can easily demonstrate to the provider where things need to improve. Otherwise, the adviser retains the option to move assets elsewhere. 

As always with platform due diligence, it is about having a documented process in place and reviewing selection on a regular basis. 

Financial strength and commitment to market are only part of the due diligence process. 

For most adviser firms the service they receive is hugely important, and as a consequence should be a primary factor when assessing platforms. 

Michael Barrett is consulting director at The Lang Cat