So it is important to understand who is doing what and where the costs sit. Remember, the client relationship is in advisers’ control; they should manage it and articulate their service proposition clearly along with fees and/or charges.
The big three
Three areas where a platform supports an adviser’s administrative process would be: consolidated reporting – providing ‘one view’ of clients’ investments, together with all transactions and the ability to produce all the necessary tax statements; dealing efficiencies – having a single holding with an asset manager delivers cost efficiencies; and portfolio administration – rebalancing capabilities and tools to analyse the investments and their performance.
This functionality will help support the delivery of a service proposition and your ongoing review service, and must lead to a more meaningful discussion. This should cover whether a client is on target to meet his or her agreed goals and will streamline the provision of data across a number of products or tax wrappers, delivering more efficient administrative processes.
One certainty is that the regulatory landscape continues to change and there are still some unknowns regarding the longer-term impact of the ban on cash rebates on advised business as outlined in the Financial Conduct Authority policy statement PS13/1.
The financial resources available to a platform operator to back its proposition is a key factor in any selection process when return on capital employed has in most cases been non-existent. With the continuing focus on margins, the financial pressures on platform operators are unlikely to ease in the short term.
League tables of assets under advice serve little purpose in selection, buoyed as they are by stockmarket activity rather than any real indicator of service support, user engagement or profitability.
Yet to some extent size does matter, but be wary and ask questions about profitability, commitment and the level of resources that are available to support the ongoing IT development. There is no real substitute for engaging with a platform operator at the highest level and seeing the whites of their eyes.
PS13/1 from the FCA confirmed that cash rebates from fund managers to platforms are banned. The ‘sunset clause’ allows platforms to pay advisers commission until April 2016, unless there is a change in the product.
After that time, all rebates are banned and so fund groups will need to have commission-free share classes – these so-called ‘clean’ share classes are being introduced and some major platforms have already moved to these.
Until there is some uniformity, advisers should check the current position with their platform operator.
So for those firms still needing to decide whether a platform is right for their business and, if so, which is the right one, there are a number of steps to take. Figure 1 illustrates the whole process following this initial strategic review.
On the right path
Step 1: Review of business strategy
The starting point is to review the current business strategy to determine how the use of a platform would fit in with and enhance the business and advice process. This is particularly relevant for those firms working with high-net-worth clients and who may be adopting a discretionary model.
Step 2: Market analysis Having made the decision a platform is right for the business and its clients, the next step in the process is to analyse the market and to have a broad overview of all the main players.
It makes sense to only consider using those platforms that have the entire product range and tax wrappers that are used on a regular basis.
With regard to fund choice, while whole-of-market coverage would appear more attractive, in reality those with a more limited fund range may include all the funds that are generally needed.
A number of platforms have the ability to include other assets such as existing funds or alternative investments such as property or other assets. While the ability to include these assets in the client’s overall wealth is useful, consideration should be given to how these assets are valued as most of the platforms that include this facility require the adviser to provide and maintain the information, either the valuation or the number of units held etc.
If pre-set portfolios are used, then the availability of the portfolio funds should be considered together with the ability to set up and administer the portfolios on the platform. Access to discretionary fund managers may also be relevant and whether the platform offers a family discount, where funds for the family can be aggregated to gain a lower charge on the total being administered.
Step 3: Shortlist and due diligence A shortlist should be compiled based on matching the services offered by the platform operator with those required by the business and the client base.
Once the shortlist is in place we would suggest full due diligence is completed on each of the operators. There are a number of key areas that should be looked at in the due diligence process, including financials – does the platform have the financial capital at its disposal to continue future developments, who owns it and is it profitable? There also needs to be a review of service support – is it face to face or telephone-based, what training is provided during the set up and implementation process?
Step 4: Decision and implementation Implementing a platform can mean simply a straightforward change in the advice process, i.e. deciding the client circumstances in which a platform will be considered, or it can be a fundamental change to the business involving putting in place a new advice process. It is in this second scenario where the benefits of a platform will be seen most clearly.
We would expect the chosen platform operator to offer support during the implementation process and they should be challenged to provide evidence and testimonials of successful implementation with similar-sized firms so this can be verified.
l Step 5: Review and monitor The final stage in the process is the review and monitoring. Clearly, this is ongoing but it is often useful to set a specific time to review the progress of an initiative such as this.
The review should consider the business objectives and strategy, and any changes that have been made to them in the intervening period. Users should also look again at any developments that have taken place in the platform market to ensure the chosen operator remains competitively positioned and continues to develop the overall proposition in line with expectations.
Finally, the service experience should be reviewed, considering whether the improvements that have been made are well received by clients and how successful any migration onto the platform has been.
Period of change
Until the introduction of the retail distribution review, the costs associated with buying funds, including advice and platform charges plus the fund manager’s own costs had been bundled together, meaning it was very difficult to determine how much each component cost and, equally, realistic comparisons were very difficult to make.
These combined or bundled charges are now being ‘unbundled’ to make it more transparent and easier to understand. The FCA’s PS13/1 stated it was to proceed with its core proposal that requires a platform service to be paid for by a platform charge disclosed to and agreed by the consumer.
A number of fund management groups are launching clean share classes that do not include commission. However, be careful when making comparisons as there is yet no standard for comparing.
There has been significant change during the past three years and platform charges have been reduced and charging structures simplified, but more still needs to be done and perhaps the whole basis of charging should be reviewed.
It could be argued the platform expenses should be borne by the financial planning company as cost of trade, passing it on to the end investor via their fee or adviser charge. This already happens with other business expenses such as back-office costs, telephony and research, so why not for platforms?
Finally, during this period of ongoing change advisers should obtain the best idea of costs – but, remember, the regulator is not necessarily expecting them to adopt the cheapest platform but the one that allows them to deliver best value to their clients.