Most of the firms we work with use platforms as part of their proposition, therefore most firms need to do their platform due diligence, but many struggle to know how to document this in a compliant way.
I attended the PA360 conference lastmonth, my first post covid event(!), and sat in a really interesting discussion about platform due diligence chaired by Natalie Holt from the lang cat, in which speakers from Seccl, P1 and 7IM shared some interesting insight about due diligence, the latest technology they have created, and thoughts on where platforms are heading.
There were a lot of questions from the audience and it got me thinking about the questions that I normally get when I’m talking with advisers about their own due diligence.
So, I’ve pulled together an overview of how to get started, along with some of the common misconceptions below, to help you understand how to meet your regulatory requirements.
There are a number of factors at play here, from finding a platform that supports your clients, and you actually like working with, to documenting this in a way that meets your regulatory requirements. It’s this second part that we find firms most frequently struggle with.
1. How do I do it?
It all starts with your PROD client segmentation; once you’ve identified your typical client segments and the factors that are important to each of them, you can then start to research the market to see what fits. We use a variety of research tools to filter platforms down, as well as our own due diligence and general market research.
2. How do I document it?
We would suggest you create three documents that fit together as your firm’s proposition. Your PROD client segmentation, your PDD (platform due diligence) and your CIP (centralised investment proposition). Each of these should be clearly firm specific.
For your PDD you need to document how you’ve discounted other providers in the market and arrived at your chosen platforms. You’ll also need to document how you’ve identified the features important to your client segments and how those chosen few platforms meet their needs.
3. Do I have to do PDD?
Technically no. From the FCA’s point of view, platform due diligence is guidance not a rule, so you don’t have to, however you do of course need to show research for every client recommendation made. So, if you don’t have it, you’ll need to run a Selectapension report (or similar) for each recommendation – which is unnecessarily time consuming, so it makes sense from both a compliance and efficiency perspective to have it in place.
4. Can I use only one platform?
Yes, if you think that the one chosen platform is suitable for the needs of all of your client segments and you can provide research to show that, then absolutely. We tend to find that most firms however will offer more than one platform to suit an array of client types.
5. Can I go off proposition?
Definitely. The majority of firms will attract a similar sort of client that fit nicely into their PROD defined segments 99% of the time, with that 1% being classed as an ‘outlier’ whose objectives aren’t met by the usual due diligence.
As nice and efficient as it is to have centralised research, it’s important not to shoehorn clients too and in those situations whole of market research is more appropriate.
6. How often do I have to update my due diligence?
The platform market certainly can be lively! Mergers, takeovers and new interesting platform technology coming to the forefront keeps us on our toes, so we would recommend reviewing your due diligence every 6–12 months.
That doesn’t mean picking new ones that often, just reconfirming the ones you have are still suitable or, if for any reason you do need to look for a new solution, go back to the top and look at the factors important to each client segment and do your whole of market research again.
It can often feel a bit overwhelming, this concept of due diligence, but it’s actually what you’re probably doing anyway – it’s just about getting it down on paper to show exactly what you’ve done and why it’s right for your clients.