4 min read 20 Apr 20
The information contained in this page is for professional Financial Adviser use only.
Much of the financial services industry is still getting to grips with the PROD governance rules. This slower than expected uptake is partly because some of the necessary steps that advisers are required to take – namely client segmentation – are not explicitly stated under the rules.
However, thankfully, some of the other PROD rules are far more forthcoming, including what advisers (known as ‘distributors’ under PROD) need to consider when it comes to their due diligence process for ‘manufacturers’, which includes platforms.
PROD rule 3.3.2 – to be exact – highlights three key areas for advisers to focus on when it comes to platform due diligence:
The good news is that most advisers are already likely to include these three points as part of their established platform due diligence process. In addition, most advisers will also assess the following areas as part of a typical due diligence exercise:
The FCA recognises that firms may decide to offer the services of a limited number of platforms, so before looking at the platforms themselves, adviser firms will also want to consider:
If any of this is starting to sound a little too obvious, then bear with us just a moment, because we’re now going to look at the meatier parts of platform due diligence which ask deeper and lesser known, but no less important, questions and tips that advisers should watch out for:
It’s true that the breadth of a platform’s universe is very important, as this is what will ultimately enable, rather than restrict, an adviser’s proposition. But it’s arguably not enough to simply ask if a platform offers ETFs, for example. How assets such as ETFs are traded can have just as big an impact for client outcomes. Put simply, it’s all about asking how as well as what.
When it comes to a platform’s proposition, flexibility is also key. What you’re looking for here is a broad enough asset base and wrapper range to deal with the diversity of a client’s needs, not only now but if and when their circumstances change.
Whether it’s in response to new regulation or a push into new markets, an adviser business can evolve greatly over time. Understanding if your platform has the asset scope and functionality to be able to grow and adapt with you is therefore key, even if there are no immediate development plans on the horizon.
You should feel completely confident that the platform will not attempt to build a relationship with your end clients. Good questions to help gauge this include asking if and when the platform may contact a client directly or if they offer services such as branding, which should ensure that investors don’t get confused about the platform relationship.
The many different provider business models out there can make it challenging to fully assess financial strength but we would argue that looking purely at profit and loss in isolation, as a measure of commitment to market, is too simple. Using an unbiased, third party agency like AKG can help you to review more than just the financial strength. They look at financial strength as well as future performance and operational strength. You can see their latest report here.
Ultimately, a document-based due diligence exercise can only tell you so much. Putting in some important face-to-face time with representatives from platforms is crucial to get a real feel as to how they operate in practice.
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.