Dealing with due diligence, the forgotten questions

The Exchange

The information contained in this page is for professional Financial Adviser use only. 

We’re guessing most of you will have read your fair share of news articles and handy leaflets with ‘top tip’ lists for platform due diligence by now.

But all too often these questions range from only skimming the surface of what is really needed to fulfil due diligence, to merely stating the blatantly obvious.

Almost any due diligence process should be much more than just a simple tick box exercise. So we’re aiming to take things a few steps further here and get down to the real meaty part of platform due diligence by looking at some of the lesser known questions and tips that advisers should watch out for:

Does a platform’s range really compliment your proposition?

No one can deny that the breadth of a platform’s universe really matters here: from the tax wrappers on offer, model portfolio structures and access to DFMs, through to the investment range. After all, a platform should enable an adviser’s proposition rather than restrict it. However, simply asking if a platform offers ETFs, for example, is not enough on its own: how assets such as ETFs are traded can have just as important an impact for client outcomes. Put simply, it’s all about asking how as well as what.

Flexibility of a platform’s proposition is key too. What you’re looking for here is a broad enough asset base and choice of wrapper to deal with the diversity of a client’s needs, not only now but if an when their circumstances should change quickly.

Will your platform allow for the evolution of your business?

An adviser business can change greatly over time, whether as a result of new regulation or a push into new markets. And even if development plans aren’t on the immediate horizon, it’s important to understand if your platform has the asset scope and functionality to be able to grow and adapt with you.

Value and cost. In no way is it a provider’s place to tell advisers how they or their clients should attribute the ‘value’ of a platform. What providers can and should do is take as upfront and transparent an approach to their own costings as possible, so that the adviser can easily establish their own sense of value, relative to the specific needs and circumstances of their client base.

Can you spot any conflicts of interest?

Advisers should be completely confident that their platform will not attempt to build its relationship with their end clients. Any issues around this can be gauged by asking questions about if and when the platform may contact a client directly or if they offer services such as branding, which ensures that the platform relationship does not become confusing to investors.

Commitment to the market. The many different provider business models make it challenging to fully assess financial strength but it’s our belief that looking purely at profit and loss is an overly simplistic approach. These figures should not be viewed in isolation as a demonstration of a platform’s commitment to market. Establishing a way to assess the ‘covenant’ that the company providing capital (e.g. a parent company) has placed on the platform proposition, is likely to provide a much clearer picture of how committed it is to keeping the platform operational into the future.

People and cultural fit. There’s ultimately only so much that can be garnered from a document-based due diligence exercise, so it’s vital to put in some important face-to-face time to meet representatives from platforms in person and get a real feel as to how they operate in practice.

Please note: The information contained in this page is for professional Financial Adviser use only. If you are a private investor, please visit the Private Investor section or contact your Financial Adviser for more information.

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