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Platforms – the disease or the cure?

  • By Jason Stockwell

Compliance consultant Tony Catt reviews some of the issues involved with the platform market today


Over the years, platforms have become a major cornerstone of the advice service offered by advisers to their clients. On the face of it, they make perfect sense. They provide a single place where an adviser can store all the assets of their clients very efficiently and transparently, without restriction of fund management groups, but enabling the use of different tax wrappers and often with lower charging structures than by investing directly. What is not to like about that arrangement?

The use of platforms is good for the adviser’s administration process and provides a cheaper and better service for clients.

The FCA has reviewed how platforms were used. In that review they expressed concern about provider bias and adviser independence if only one platform was being used by an adviser firm. Therefore, it recommended that advisers should probably work with two or more platforms to ensure independence. This also tied in with the idea of segmenting clients for service levels. This ideal works quite well when the charging structures of the platforms is compared. It can clearly be seen which investor types certain platforms wanted to attract in the table 1. On the issue of charges, the market is extremely competitive, having almost become a race to the bottom to win business. Whilst this is great for clients, this does raise issues of profitability and therefore sustainability of platforms in the market for the longer term.

This is obviously just one element of the research involved when comparing platforms. Indeed, the research on this very topic which I undertook last November ran to over 60 pages. I am currently renewing that research to ensure that my client firms have up to date research in this important respect.

MiFID II

At the turn of the year, the implementation of MiFID II has caused some issues for platforms in respect of their position in the advice process. Fund managers as product manufacturers needed to produce more detail about their charging structures in their illustrations and literature. Also, the fund managers would need to advise underlying clients if their funds fell by 10% in a reporting period. The issue for platforms was whether they should be involved in the chain of advice. The platforms were not manufacturers nor indeed were the advisers, which meant that the fund managers were expected to be advising the clients direct. However, since the holdings on platforms tend to be in a nominee name, the fund managers would not have knowledge of the end client and would be reliant on the platforms and or advisers giving this information. So, the platforms that had been the centre of the process would be removed from the chain of information to clients, which could be problematic.

Questions, questions

Most recently, the FCA has raised the issue of ongoing adviser charges being paid by platforms to advisers as there was some suspicion about whether advisers were actually undertaking reviews for clients as regularly as they were expected to. It was suggested that if the platform had seen no transactions, the assumption would be that no review had taken place and therefore no adviser charges should be paid. Whilst many advisers with large client banks would struggle to hold – or even offer – reviews to all their clients, this would penalise many advisers who undertake reviews, but leave investments to continue to be held within their portfolios. A review should certainly not mean a definite change to a client’s investments for many good reasons.

It begs us to ask this question. Surely it cannot be beyond the wit of man for the advisers to be able to confirm that a review has taken place by ticking a box on the portal or possibly even providing a document which would evidence that a review has taken place?

However, it raises yet another question. If the platform stopped paying the adviser would it then mean that the charges to the client would be reduced accordingly – as they should not be paying for advice that they have not received? This whole issue raises logistical problems and questions around who should be paying for the extra work involved in policing this.

So from having started out life as a pretty neat idea, great for advisers and clients alike, it would seem that as well as having to cut their margins, platforms are having extra regulatory responsibilities laid at their doors. Also because of the FCA’s insistence that they should only get a fraction of any adviser’s business, they need to be dealing with even more advisers to get in the same amount of business.

I guess the conclusion I’m drawing here is that whilst the advisers love platforms, the FCA does not quite share the love.


About Tony Catt

Formerly an adviser himself, Tony Catt is a freelance compliance consultant, undertaking a whole range of compliance duties for professional advisers.
info@tonycatt.co.uk

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