Advisers doing platform due diligence should go beyond a provider's published pricing and find out about the special deals it may offer certain firms.
There’s probably three elements of platform due diligence that have needed to evolve heavily in the last 18 months: it’s fairly widely understood that there is quite a number of platforms going through re-platforming process, so advisers probably need to familiarise themselves with questions over how technology upgrades may impact platform choice, we’ve also entered a period for the first time where there’s corporate instability in the platform market with a number of platforms either up for sale or looking at listing, which would clearly mean quite a significant change in shareholder base .
The third area is something that has received much less attention: the move by a lot of platforms to begin to offer pricing that goes significantly lower than the published pricing.
As part of a due diligence process, many advisers will consider research done by external parties that do price comparisons across the platform market, but arguably these are becoming less relevant as they fail to take into account the increasing number of instances where platforms are interested in offering special terms.
Scutinising the special deals
Those special terms can be viewed in two ways: on the positive side, they obviously result in a lower charge for investors, which is always a good thing as long as service levels are maintained. On a negative side, they could be open to accusations that they are short-term manipulative deals that are more in keeping with the bad practices that the industry was famous for historically.
These deals would clearly make more sense if they were being offered by platforms with strong balance sheets and strong profits, but as this is still quite an immature industry with standalone platform profit fairly sporadic, it looks at least on surface value that these deals are about buying volume than they are about making actual long-term sound commercial sense.
It’s important therefore that advisers understand to what extent these deals are available, what criteria do they need to fulfill to secure these better deals for their clients, and what comfort can the platform give that these special terms on offer are commensurate with those being offered elsewhere to other firms with similar criteria.
It’s also important for advisers to understand the long-term impact of accepting these terms. It’s clearly advantageous for firms to get access to cheaper pricing, but arguably not if that is going to prevent the platform from investing money into technology and development that will in the long-term generate the outcomes that clients expect when they are recommended to use that particular platform.
Onus on advisers
In the future the onus might be on advisers to know whether a platform they’re using is offering firms special pricing, even if they’re getting the headline prices. It is an area that if advisers wish to secure the best outcome for their client, they need to ensure they’re on the best possible terms being offered by that platform, which effectively means they have to understand their position versus other firms to establish whether they’re competitive.
There is also a point of consistency: to what extent would platforms publicly offer the same terms to all firms that meet the same criteria or to what extent do they show regional or seasonal bias to meet their short-term sales requirements?
There are questions over whether this would enter treating customers fairly or conduct risk territory; where client outcomes are being biased by deeper commercial considerations by a platform.
I’m not going to comment on that, or tell advisers what is right or wrong. What I am suggesting is advisers need to understand all the issues I’ve brought up and satisfy themselves that there are no behaviours here that they would not like to be associated with.