Platform propositions

http://citywire.co.uk/new-model-adviser/news/how-to-meet-fca-due-diligence-expectations-on-platforms/a991613?ref=new_model_adviser_features_list

Understanding your platform proposition
If firms often struggle with understanding their model it is little wonder that advisers may have difficulty understanding how their platform operates and where they should direct their due diligence when deciding on their chosen platform(s) in line with FCA’s expectations.
There are a number of platform models in the market and some that are not platforms but appear to be:
1.     White labels
2.     Platforms that arrange custody
3.     ‘True platforms’ including custody
4.     Execution-only brokers and virtual platforms
White labels
A white labelled platform is often offered by platform service providers to adviser firms, whereby the platform can be white-labelled and look like the adviser firm’s proposition.  Some large adviser firms white-label their platform and pay for bespoke services with considerable control of the proposition, without being a platform service provider. 
If you choose to white label your platform, make sure your clients understand who is providing the platform service and that product literature is fair, clear and not misleading.  You should still carry out due diligence on the platform provider and consider the custody model, outsourcing and technology provider.
Arranging custody
A number of platform firms offer opportunities to become a platform service provider that arranges safeguarding.  It may also be possible to become an ISA Manager whilst outsourcing administration to a third party but retaining responsibility to comply with the ISA requirements.  The terms and conditions have a tripartite arrangement such that client money and assets are held by the custodian whilst the platform service provider outsources the operations to the same firm.  Some of these arrangements are like virtual platforms that further outsource fund management and stock broking.
The terms will tell you whether the platform service provider is not a custodian. This is not necessarily a bad thing as the custodian may be a well-established provider but you should also apply your due diligence to the firm that holds your client’s assets and money.
‘True platforms’
‘True platforms’, as the FCA referred to them in FS13/2 are platforms that provide custody of assets, and hold client money.  Even then, it is possible the back office operations are outsourced and most of the largest life company platforms outsource their back office operations to a single supplier.  In some cases, the platform may also be a stockbroker and use its own proprietary software although this is less likely, as the big suppliers like Bravura, GBST or IFDS dominate.
Execution only brokers and virtual platforms
Execution only brokers offer services direct to customers and were brought within the platform service provider definition to abolish commission payments post RDR.  There are also a number of ‘pseudo platforms’ that white label a proposition and may look like a platform but when you read the small print everything is provided by another firm.  It is worth checking the ‘platform’s’ permissions on the FCA website.  If the ‘platform’ does not ‘arrange safeguarding’ then they are not a platform and just a white wash of another firm’s services e.g. a small fund manager.
Due Diligence
The variety of platform structures can make due diligence quite difficult and it will be necessary to read the small print, especially the terms and conditions.  Your due diligence needs to extend beyond the platform service provider to the firm that actually holds your clients’ assets in legal title.  Make sure you check the FCA register and look out for pseudo platforms.
Where a platform outsources to a third party or uses third party technology to power their platform you should consider these other participants in your due diligence and show that you have fully understood their role in the platform service.  Your platform provider should be able to disclose where assets are administered and who is responsible for each part of the platform service.
 
Anthony Smith FCII, APFS, Chartered Insurance Practitioner
AJS Consultancy Services Ltd – Member of the Association of Professional Compliance Consultants
www.ajsconsultancyservices.co.uk
 
Published: March 2017
By: Anthony Smith

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