All of this demands a new approach. Platform due diligence has become emphatically more than the box ticking exercise it may have been in the past. A deeper dive is expected as well as a more considered analysis of how a platform manages financial, operational, and technological risks. It also means thinking differently about financial strength, one of the most critical considerations in the platforms market.
Under a dynamic approach to estimating foreseeable harms, financial strength becomes more than a solvency stamp, it means considering the ability to invest in the platform development roadmap. It becomes a strong proxy for the future health of a platform since a platform owner must have the ability to continually invest in functionality, user experience and service. Any platform that cannot invest risks stagnation, acquisition, and the potential re-platforming of client portfolios.
There is still a belief among some advisers that if assets sit with a custodian, or if there is a compensation scheme, then financial strength does not matter. Without strong financial support, the risk of business failure is more likely and could, ultimately, lead to a distressing and uncertain route to asset recovery or compensation for investors. It’s not the experience or outcome any customer would expect. And, under the expectations of Consumer Duty, entrusting client assets to an evidentially weak platform could be seen as a foreseeable harm.
The Consumer Duty requires advisers to consider whether the total cost of advice to the customer, including all platform and product fees provides fair value. Let’s recap what the FCA expect under the Duty’s Value For Money pillar:
- Assess the total cost of a product to a client, including advice, platform and provider charges.
- Assess value-adding benefits such as extra features, better support, superior convenience.
- Demonstrate ‘fair value‘ to clients by reasonably balancing costs and benefits.
- Monitor value over time to ensure it does not deteriorate and act if it does.
- Check that products offer value to all clients, including vulnerable customers
- Check that older products keep their value in relation to newer products
It’s clear that value for money in financial services is about much more than the price paid – it is about the customer outcome received and the customer experience felt on the journey towards that outcome.
In a platform and investments context, while price is still a critical component, it is only one key aspect of the value for money that a consumer ultimately receives from a range of possible propositions that can offer very different customer experiences and outcomes.
Significantly, customers do not have access to whole of market information that allows them to benchmark their advised platform experience. Customers see benchmarked fund performance for the funds they are invested in, but they typically do not have access to the same kind of comparisons for platforms.
While many of the benefits of a platform accrue to the client, some are specific to the advisers or paraplanners who use platforms regularly on behalf of their clients. Platform features, like data integrations and straight through processing, which are principally adviser benefits are still a key part of client value for money since there is a cost in adviser time of dealing with a poor platform that lacks connectivity and relies on time consuming, paper-based processes. This cost invariably impacts the client either in terms of their total cost of advice or in terms of their advised experience.
Any platform value for money assessment therefore demands careful consideration of a range of factors that can ultimately influence the customer outcome and experience. And those benefits can and should also be articulated to the end customer.
The FCA puts the onus on advisers to evidence they have taken all reasonable steps to deliver value to their clients. This requires a different approach to the financial advice model of old where an adviser recommended a product, selected funds on a platform then worked back to document the recommendation. Now, it means running deeper platform due diligence regularly. This can ensure advisers are accessing not just the right technology and tools, but also collaborating with the providers and people that have a shared determination to deliver good customer outcomes.