AKG’s Matt Ward provides a quick refresh on the requirement for, and benefits of, due diligence
It is in the best interests of adviser businesses to carry out robust, repeatable and recordable research and due diligence exercises when selecting partners for their business, including platform operators.
This should be done to facilitate best practice within the adviser business and, crucially, to support the delivery of good customer outcomes. Furthermore, the regulator remains keen to see evidence of more engaged due diligence being carried out by advisers.
In a market experiencing great change and challenge, due diligence remains a consistent requirement and is something that needs to be done when first identifying and selecting partners, and then revisited on a regular basis.
Platform fit
Most things in life are about striking the right balance and, at a high level, finding the right platform fit is also a balancing act, where the aim is to identify and corroborate the choice of platforms, which can:
1. Support the delivery of your customer services proposition and optimise customer outcomes (across different customer segments/types where relevant).
2. Work efficiently in collaboration with your adviser business, its staff, technology, structure and processes.
Contextualise
Adviser businesses should also seek
to contextualise due diligence exercises, and key considerations
for their customers and their business, against the backdrop of an uncertain economic, regulatory and political landscape, allied with ever-changing financial services and technology marketplaces.
Here are some examples of contextual items for consideration by adviser businesses:
- How has the platform responded to regulatory change and implemented requirements such as the Markets in Financial Instruments Directive II, General Data Protection Regulation and Senior Managers and Certification Regime?
- Has the platform been impacted, directly or indirectly, by corporate-level M&A activity and, if so, how is it responding?
- How has the platform ensured or (via re-platforming or other exercise) been capable of ‘future proofing’ its core technology and furthering its digital capability? And, if challenging, how has the platform been impacted by the disruption and cost of ‘additional’ technology exercises such as re-platforming?
- How far advanced is the platform’s cybersecurity programme?
As potentially the spectrum of platforms and back-office systems and other infrastructure tools become more blurred, the need for robust due diligence is both underlined and needs to be consistently applied, to as great a degree as possible, for all these broader ‘competing’ entities.
Platform agility
Because of the various challenges, platform operators need to illustrate agility in their business and in their proposition, including the technology/digital component. This isn’t necessarily all about size and resource, although capital reserves and ongoing investment will inevitably be required, but displaying an ability to respond to key market changes and developments while keeping abreast of evolving adviser and customer requirements. Platform survival is a marathon, not a sprint.
Reason to review
Relationships with one or more platform operators are already likely to be established, but the requirement to carry out comprehensive research and due diligence exercises to support platform partner selection and/or retention remains. Hence, there is likely to be an element of reflection when carrying out ongoing review work, which accommodates the sentiment of the adviser business towards the proposition and service being delivered by existing platform partners.
Similarly, some beliefs and approaches within the adviser business might have changed in this intervening period, for example the composition and delivery of the investment proposition for customers. Ensuring the fit of existing and/or new platforms or underlying technology in terms of determining their ability to service this investment proposition may therefore be relevant.
Three key areas
Therefore, it often serves well to come up for air and look at things from an overarching perspective. Here we look at three core components, and present example items within each, which should represent key due diligence areas for consideration by adviser businesses when selecting and re-appraising platform partners.
1. Proposition
- The right blend of products, tax wrappers and investment options to meet adviser business and customer segment requirements;
- A charging structure that can dovetail with the adviser business’s customer charging framework;
- Tools and services that can support the delivery of advice and wealth management servicing.
2. Operational
- Strong risk and governance culture with associated structure and processes in place;
- Safe custody of customer assets and customer data security;
- Functional interaction with external third parties, including adviser back-office systems, asset managers and distributed file systems;
- Reliable and timely delivery of helpful online and offline adviser/customer tools and services.
3. Strength and sustainability
- Ability to invest in continued platform improvements, including infrastructure and technology;
- Strong and resilient key business performance indicators;
- Brand and distribution reach/traction;
- Clear business growth and development strategy in place, short and longer term;
- Well-blended senior management team with a grasp of regulatory and legislative direction of travel.
On the front foot
By adopting robust due diligence processes, adviser businesses will put themselves on the front foot with regards to establishing and sustaining winning relationships with platform operators and other underlying technology players, delivering positive customer outcomes and being able to better respond to change and challenge.
Matt Ward is communications director of AKG Financial Analytics
