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Is a platform the right answer?

ATEB Consulting’s Steve Bailey looks at how the Regulator is assessing adviser firms’ platform use, based on TR16/1 and the recent Live and Local workshop presentations

From time to time, someone from the FCA will give a speech or presentation that can provide an insight into what is not published, namely how the regulator is thinking about a particular topic and hints as to likely future direction of travel. Speaking at the 2016 Personal Finance Society Paraplanning Conference, Rory Percival, Technical Specialist at the FCA, did just that.

No doubt reflecting on the huge uptake in platform use by advisers in recent years, he reminded the audience of the need for meaningful research to be carried out when picking a platform for clients, and that the research and due diligence process needs to be refreshed regularly. He also reiterated the FCA’s findings from its review of firms’ due diligence. Thematic Review 16-01 stated: “We were disappointed to identify issues relating to platform research and due diligence, particularly having previously published our expectations around this topic. Firms did not seek to understand or challenge their own inappropriate bias towards products, services or providers and this led to a lack of objective consideration. In some cases, this appeared to result from status quo bias.”

And then came the statement that should make all firms that use platforms sit up and take note. He proposed that advisers need to consider whether clients need to use a platform at all.

“Don’t think that because it’s an investment it has to be on a platform. You should always be asking is a platform the right thing for a client at all.”

This is not a new concept. Fact sheet 12 giving guidance on the use of platforms was first published by the FSA in July 2011 and stated: “Suitability is not just something to consider regarding the particular investment you are looking at when advising your client. You must also consider the suitability of the platform service itself.”

And it does not appear to be a one off comment either. The FCA presenter on investment roadshows running up and down the country over the past few months made a point of stating that if a platform solution is contemplated then the fact find should show that relevant questions have been asked to establish that the client actually needs or wants the features that a platform adds. Otherwise, it could be viewed as simply an extra layer of expense.

Experience tells us that these comments could indicate that the FCA has a degree of focus on the use of platforms currently. We believe platform use is on the regulator’s radar and that it would be prudent for firms using platforms to review how and when these are used.

Questions to ask internally are:

• Has it become a default part of client solutions?

• Do you ever not use a platform?

• Are different platforms used for different types of client or is it one size fits all?

• Where a platform is used, is there clear evidence on the file / fact find that the client needs and will benefit from the platform layer to a degree commensurate with the additional cost involved?

• Or is the platform mainly of benefit to the firm?

And platform due diligence is definitely on the regulator’s radar – the last thematic review on this aspect showed that many firms were falling short of expectations in relation to platform research.

Recommended action

• Read the relevant FCA papers if you have not already, or recently, done so – click here for TR16-01 and here for the latest version of Factsheet 12;

• Ensure that your platform research meets the regulator’s expectations;

• Ensure that your KYC process explicitly identifies whether the client’s needs and objectives require a platform layer and justify the extra cost involved;

• Consider whether the use of a platform benefits the firm more than the client – the client’s interests should take precedence;

• Ensure that your investment process defines the client situations(s) for which any particular platform is appropriate.

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