Better Business: How can you select the right platform?

With the number of platforms increasing and competition intensifying, advisers need to take more time selecting the right platform for their clients, writes Skandia’s Jeremy Mugridge.

The amount of business advisers are placing on platforms is growing rapidly, and the number of platforms is increasing in line with this demand. These two factors combined raise the importance of platform due diligence.

A few years ago the use of platforms was limited to ISAs or unwrapped unit trusts and OEICs. However, most platforms now offer a full range of product wrappers including pensions and bonds. As a result platforms are fast becoming a fundamental part of advisers’ businesses and it is increasingly important for advisers to select the right platform or panel of platforms for their customers and their business.

With the number of platforms increasing and competition intensifying, the process of evaluating and comparing all of the services on offer is becoming more complex.

Backing the right choice

It is inevitable not all platforms will survive and advisers who choose a platform that ends up failing will experience significant problems for both their business and clients. In order to minimise the chances of backing the wrong platform, advisers should ensure they have carried out a thorough analysis of the various options before choosing a platform. This selection process should also be backed up by documentary evidence to demonstrate just how robust their due diligence has been, should they be required to show this to the FSA in the future.

The FSA has provided clear guidance in its platform factsheet on the broad topics advisers need to consider when selecting a platform for a client or segment of clients. A key element centres around the platform provider themselves, in terms of their reputation and financial standing. When analysing platform providers, advisers also need to consider any third parties the platform links with, before selecting a particular platform. For example, the platform may own its own technology or rely on a third-party platform technology provider to develop and power it.

Power of technology

Platform technology is the crucial building block of any platform proposition and the importance of this cannot be underestimated. Platform technology is creating administration and process efficiencies for advisers, and these benefits are driving demand for platform-based investment solutions in the UK adviser market today.

Adviser firms would be wise to make sure they partner with a platform that can develop its technology in line with adviser and client needs to ensure the service keeps pace with an ever changing financial services market.

Retaining ownership of the systems development and technology that powers a platform gives the platform provider the control required to evolve its proposition in line with adviser and client expectations. Platforms that choose to outsource technology are likely to find they have less control over future developments than they would like which may have a negative effect on the relevance of their propositions in the long run.

If a platform does not own its own technology an adviser should be asking questions not just of the platform but also of its technology partner. An additional fact find should be undertaken to ascertain the stability of the technology provider and should include questions such as: how is it financed, how profitable is the company, how secure is the technology, what disaster recovery processes are in place and what is the company’s reputation for service?

Each of the ‘big four’ in the UK platform market employs its own technology and IT infrastructure, allowing them to develop and manage their own platform solutions. Other newer entrants to the market have recognised they do not have the time or resources to develop their own bespoke platform technology, opting to fast track the development of their platforms by renting off-the-shelf platform technology from Australian or New Zealand IT outsourcers.

Off-the-shelf platforms

When it comes to the newer off-the-shelf platforms, advisers should be aware of the differences and similarities between the underlying technology. Platforms using the same technology provider are likely to operate in a very similar way, because that is what happens when you white-label something. Generally, all that really changes is the price and the packaging (how the platform is marketed)

The ability to develop the proposition over time is also firmly in the hands of the technology company, not the platform, and this must raise some serious questions such as: what happens if the third party refuses to develop its underlying technology in the way that the platform requires; what happens if the relationship between the two companies breaks down; what will happen to the platform if the technology provider gets into financial difficulties or goes out of business?

Platform suitability is ultimately about ensuring the best outcomes for clients, which means selecting a platform provider best able to support the adviser’s business over the long term. A platform that is powered by its own technology is more adaptable to the needs of advisers and clients and is much more able to offer a unique service.