How can technology improve platform due diligence?

Clive Waller, managing director of CWC Research, looks at technology developments affecting the platform industry.

The wrap community, which is pretty much all of us, anxiously awaits the next consultation paper, following DP 10/2. It was set for the summer but has been delayed, we assume, due to the huge lobbying effort from the fund platforms. This delay is not good for an industry that needs to invest heavily in technology. Indeed, recently rumoured uncertainly about the very future of RDR itself does little for the reputation of the regulator.

Currently, there are two big debates in the platform world:

• Will the FSA allow bundled pricing post-RDR?
• Will it be possible for an adviser to employ a single platform post RDR?

I intend to add little to the bundling debate; most has been said. I do intend to comment on the second point, because its resolution is crucial to the future of retail investment and financial planning.

My company has researched and commentated on the use of platforms for nearly a decade, since Ian Taylor of Transact showed me the future of retail investment from a client centric viewpoint.

Technology moves too quickly for simple labels. The scope and functionality of today’s platform makes it unrecognisible from one of ten years ago. Imagine, if you can, what another ten years of development will bring us. However, development will not be in a straight line. New technology developments will look different and will be different. This is a predicament for the regulator as they are attempting to regulate a piece of software as if it were a product or service in a static world. In reality, the basis of the platform is just complicated wiring.

Platforms have much in common with back office systems. Many argue that a back office system could metamorphose into wraps. Others argue that wraps will take over the back office. Since platforms are just part of the increasingly complex jungle of systems that an adviser firm employs, it is wrong to look at them in isolation; they will be replaced by even more sophisticated systems that do the job better or do more.

Today, over 90% of adviser firms use platforms, as we know them. Post RDR, all firms will employ platforms of one form or another because it will be impossible to work profitably on a fee basis without instant aggregation, reporting and analysis, tax wrappers etc, in short that which we call a platform. Some will be what I call covert platforms where the visible ‘product’ will be discretionary management, such as 7IM, or an overt platform like Transact. The idea that we can return to a market place where financial products are wrapped in provider covers with reams of supporting literature, brochures etc is lunacy. We live in a world where we can buy shares, bonds and funds direct and place them in the appropriate tax wrappers for most of our investment needs.

Recently, two products have come to market that are very relevant to both adviser firms and the regulator.

They are Synaptic Comparator from Capita with The Platforum, a tool for platform comparison and due diligence and Moneyinfo from Sammedia that enables your client to view all of their financial affairs on one place.

Let us look at Comparator first. Comparator enables the adviser to produce reduction in yield projections to compare platforms that include platform, wrapper and fund costs (including special arrangements) and transactional costs e.g. switching and rebalancing – and much more.

This means that an adviser can model client portfolios and compare costs between those platforms being considered. It would not be practical for advisers to carry out the calculations that Comparator does in seconds themselves, given the number of variables involved. This works superbly where the adviser has a clear customer profile and a clear investment proposition. It will be possible to find the best platform for your customers (or for each customer segment) with confidence. It will not work for the adviser who has no idea who his customer is and has no formal investment proposition – in short, those trying to be all things to all men. This adviser might well think Comparator could be the answer to his prayers as he can ‘broke’ not only the best platform for each client, but possibly offer different platforms for different products to the same customer. You may laugh, but it happens.

It’s crazy for two reasons: no business has ever been built by trying to make or supply all products or services to any Tom, Dick or Harriet; good businesses focus. Secondly, the cost of employing too many platforms would far outweigh the benefit. It would be almost as stupid as running 1st, Quay and Intelliflo randomly for different clients in the business.

Back to the bright side, it seems to me that a product such as Comparator solves the due diligence problem. The best IFAs I meet have first been very clear who their customer is; have then built a first rate investment proposition and process, and, lastly, found the platform that delivers the proposition. Products like Comparator will be invaluable because they take account of both platform and fund charges as well as wrapper and transactions charges – box ticked!

Moneyinfo is a very different tool. For me, products like this are the future. Why? Moneyinfo looks at finance from the customers’ viewpoint (which many in the industry do not). It starts with the bank account, something customers view regularly. In addition, it aggregates all financial data. So, as a customer of Cofunds with some ETFs with TD Waterhouse plus numerous bank accounts, I can see all of my financial assets together. Naturally, I can include the estimated value of property in the aggregation. As an adviser, it means that you can employ platform A as your single platform (having conducted due diligence), and still view legacy business from all the other platforms that your customer may have used in the past. All of a sudden, re-registration is not such as issue.

The beauty of a product like Moneyinfo is that it involves the customer and creates interest. The customer is encouraged to use the data and tools available. We know from 401ks in the US, that greater understanding and involvement results in greater sales. Moreover, the adviser will learn more about the customer. Customers will do more themselves; this scares many advisers. Sorry – it is inevitable. No one pays for what they can get for nothing. But it just doesn’t matter because the financial world is becoming vastly more complex so that most people with savings or who have financial aspirations will need a good adviser to guide them through the maze – someone they can have confidence in and trust.

In a short time, products like this will be standard. Advisers’ systems will be wired together so that data is only input once and all the parts behave as one. What is now the platform will be just part of this. To try to regulate one part of this complex package of software is about as progressive as the Luddites were in 1811. You cannot hold back progress – whether you are a regulator or an adviser.