Migrating to the right platform

Chris Read gives his top tips for successful migration of clients’ assets onto wrap platforms.

Two parallel studies of IFAs and product providers that Dunstan Thomas commissioned in April found that both audiences agree the trend for legacy assets to be migrated onto wrap platforms is accelerating.

This is no doubt due to the market pressures created by the Retail Distribution Review (RDR) deadline just a year and a half from now. 

60% of IFAs and 61% of providers believe there will be £300bn or more assets under management (AUM) on platform by December 2013 and a significant minority (9% and 10% respectively) think AUM on platform will rise to over £500bn from roughly £120bn today. 

Many IFA firms are migrating the majority of their clients’ assets onto wrap platforms as part of their strategies for growth post-RDR. Similarly, some of the larger providers have now built or are building wrap platforms to attract a new, potentially higher value segment of the market. 

What to do next

So with all this migration activity under way, how do adviser firms avoid falling foul of the Financial Services Authority (FSA) regulation?

What do IFAs need to do to ensure their migration processes and customer documentation is fully compliant?

Firstly, IFAs need to clean their customer data records. More than this, they need to be able to properly analyse and segment their customers with a view to identifying which of them to migrate onto which wrap platform and then accurately document and justify subsequent client recommendations. 

Once firms have cleaned their customer records, then firms will need to use their own Customer Relationship Management (CRM) system, or work with a specialist outsourced service provider, to carry out vital customer analysis and segment them.

They will need to be able to ask and answer questions like:

• Who has the most assets by client?
  
• Which providers have the most assets?
  
• Where is the money located by product type?
  
• Where is the money by Registered Individual?
  
• What is our total AUI – Assets under Influence?

Once this analysis work is done firms are in a position to identify how many of their customers are most suitable for migration onto platform and then set timelines for so doing.

They may need to determine how many they want to move in the next 12, 24 and even 36 months.

Without expert assistance it is going to take a long time to define specific tranches of customers, liaise with them to explain the value of migration, produce compliant Suitability Reports for each and then ensure compliant transfers in line with FSA guidelines.

Firms will need to run current Reduction in Yield calculations on pre-migrated client portfolios as well as post-migration onto a specific platform (or possibly on several platforms). Customers must know all the financial implications of the movement of their assets including any transfer costs.

Be very careful not to be in breach of Treating Customers Fairly principles.

The FSA will look particularly hard at asset migration programmes that look hurried and involve nearly all firms’ clients and assets under influence.

Firms also need to be wary of moving all assets into one single platform the FSA has indicated that this is likely to mean that some customers will be disadvantaged. They will audit carefully.

In other words, they say, there is a likelihood that some customers will not be suited to specific wrap platforms because they support a specific set of assets, funds, fund managers, tax wrappers, investment and retirement planning options. 

That said, it is understandable that IFA firms want to deal with a limited number of wrap platforms.

They see signing up with lots of platform providers as a retrograde step akin to their current situation of managing multiple provider relationships (and navigating their very different and often inefficient administrative processes).

For many IFA firms the ability to consolidate most clients onto one platform will take a good deal of the sweat out of day-to-day processes like obtaining valuations, rebalancing portfolios, increasing contributions or delivering capped drawdown illustrations to the client.

In conclusion, the merits of asset migration onto platform are coming through loud and clear for IFA firm bosses preparing for RDR and needing to run more efficient businesses to stay ahead as regulatory and training requirements mount.

The whole industry sees it as an inevitability, but IFA firms MUST ensure none of their customers are disadvantaged by this process.

Our advice is if IFA firms are looking to complete migration before RDR, they should seek assistance with some or all aspects of the process or scale back migration ambitions to ensure they come out unscathed from any FSA investigation during, or soon after  the completion of, asset migration projects.

Chris Read is chairman of Dunstan Thomas