The FCA has criticised financial advisers for the way they select fund platforms. Kit Klarenberg
hears what the platform industry has to say about that.
The Financial Conduct Authority (FCA) assessed a number of firms in its thematic review (‘Assessing suitability: Research and due diligence of products and services’) of due diligence in the platform sector.
The review looked at how advisers recommend suitable solutions for clients – in particular, how firms selected products, funds, discretionary investment management services and platforms.
The results weren’t all bad. The FCA said firms of all sizes and types can have good research and due diligence processes – but many demonstrated inconsistent and insufficient levels of due diligence in the selection of platforms. The FCA also expressed disappointment that previously issued guidance in respect of platform reviews had not been implemented.
In total, 13 firms were assessed in the review. Heather Hopkins, director of research at trade body Platforum, regarded this as insufficient. She says the review was a “damp squib”, and found the FCA’s ‘disappointment’ dubious given its tiny sample size.
Platforum’s own research, based on a survey of 104 advisers, indicated 97% of advisers carried out due diligence on platforms at least every two years, but many did so more frequently. One-third conducted due diligence at least every six months and just over half at least once a year.
“Our view is some advisers conduct more thorough reviews than others,” says Hopkins, adding that advisers tend to approach due diligence differently for new and existing clients.
“For new customers, they will review the options and choose a suitable platform. For existing customers, there has to be a good reason to move as it costs time, and therefore money, to move assets.”
Bill Vasilieff, chief executive officer of Novia, a platform used by financial advisers, also says the FCA sample size was too insignificant to draw any conclusions, much less be used as evidence that advisers consistently employ certain platforms for their own, rather than clients’ benefit – a point the FCA raised. In any event, he feels there are often good reasons for advisers to rely on the same platforms for all their clients.
“It’s not easy for an adviser to offer their clients good service when a platform is poor. In my experience, advisers pick platforms on the basis of good service, and stick with who they know and trust,” he says.
“It can be expensive and time-consuming investigating and testing new platforms, so it’s understandable many advisers adopt an ‘if it isn’t broken’ attitude to selection.”
The review’s conclusion stated more guidance is to follow. Some have suggested the FCA’s next step will be to publish a list of questions advisers must ask platforms, to ensure thorough due diligence.
Nucleus, another platform, has pre-emptively published a white paper outlining some potential queries, which could help advisers to eliminate platforms that wouldn’t permit them to deliver proper client outcomes. For example, can advisers use a platform to carry out inter-account transfers? And can advisers request for new assets to be added to the platform?
Still, the review has its defenders. Patrick Ingram, head of corporate relationships at Parmenion Capital Partners, a firm of advisers in the southwest of the UK, considered it a measured continuation of the FCA’s drive towards greater professionalism. He welcomed its proposal to require advisers to have objectively understood the nature of the products and services they are recommending.
“Due diligence needn’t be exhaustive, or endlessly repeated, but it has to be impartial, current and involve an element of comparison between offerings,” he says.
Still, a number of options are being considered, and what form that guidance will take remains unknown. Watch this space.
©2016 funds europe