Due diligence

Some say it’s rude to talk business, but advisers can’t afford to be shy when it comes to researching potential investment platform providers’ affairs.

Scrutinising your scrutiny

In February 2016 the FCA published its Thematic Review TR16/1, which assessed the way advisers approach due diligence and research into products and services. They found that some firms don’t attempt to understand or challenge their own inappropriate preference for particular products, services or platform providers. This lack of objective consideration means many firms remain heavily biased towards the ‘status quo’.

The FCA also highlighted a lack of structure in some firms’ research and due diligence processes, and found evidence of retro-fitting due diligence to justify outcomes the firm had already decided upon. However, advisers are now duty bound to ensure that any platform they recommend clearly meets the needs of their clients, and that their approach to selecting a platform – and then regularly reviewing that selection – fully complies with FCA rules and guidance.

Technology challenges

Of course, it is not just advisers who face an increasing regulatory burden these days. Platforms are also being placed under intense scrutiny – not least in terms of ever tougher capital adequacy requirements. This at a time when yields are falling and many platforms are facing the enormous cost of ‘replatforming’.

A number of adviser platforms are in the process of moving to a new IT supplier, either because their existing technology is no longer fit for purpose or due to consolidation following a number of acquisitions within the industry. In total, over £200 billion of customer assets are due to be migrated from one platform to another. Anyone who has been through a re-platforming exercise will know it is not easy, and there will inevitably be issues and challenges along the way.

View our resources

AJ Bell Investcentre highlights

AUA of £46.1 billion*
AKG rating B+
Financial performance rated 'Excellent' by FinalytiQ

* These highlights are taken from our 2018 annual financial statement. For more information, take a look at our due diligence factsheet.

Profitability matters

Assessing platforms’ profitability is a vital part of the due diligence process.

The combined challenges of high re-platforming costs, falling yields and increased capital adequacy requirements mean that all but the most profitable platforms could soon be forced to carefully challenge their future strategies.

Those that can’t turn a decent profit may quickly become unsustainable, leaving the investors who use them facing major upheaval as they urgently seek a new home for their funds.

We’re all in it together

With so much to consider, and with so much importance being placed on those considerations, the prospect of undertaking platform due diligence may now seem more daunting than ever. The good news is, you are not in this alone. We regularly receive due diligence-related queries from advisers who are in exactly the same position as you, and we always endeavour to help as much as possible.

Assisting in this way has allowed us to identify the key areas that advisers seek information on, and in turn create the following due diligence guide. Shaped by your peers and the guidance issued by the FCA, it is designed to help you navigate the due diligence process as efficiently as possible.

We think you will find it very useful, but if you need any information that isn’t covered, do not hesitate to contact our Business Development Team.

Due Diligence Hub

Useful resources

As an adviser, the onus is on you to sift through a potential minefield of issues to find the resilient, well-run platforms that can safely be trusted to look after your clients’ assets. This process is what robust due diligence is all about.

To help you get the job done as efficiently as possible, we have created this Due Diligence Hub, featuring our own due diligence factsheet and valuable contributions from the insightful people at FinalytiQ, the lang cat, Platforum and AKG Financial Analytics.

Essential reading

Rory Percival’s ‘An ex-regulator’s guide to … Defined benefit transfers suitability and controls’

Rory Percival spent 20 years working in financial advice firms, a further 10 years at the FCA, and now runs his own training and consultancy firm. In this guide he explains the current and expected future FCA rules and guidance around Defined Benefit transfers. The guide also includes a wealth of information and case studies on issues around suitability and controls.

FinalytiQ Advised Platform Report 2018

This report provides a detailed review of the financial performance of the UK’s advised platforms. It includes analysis of key metrics like AUA, revenue, pre-tax profit, pre-tax profit margin and P&L Reserve Account for 28 advised platforms over the last five years.

FinalytiQ's Advised Platform Report 2017

Offering a comprehensive analysis of advisers platforms in 2017, FinalytiQ’s Advised Platform Report is a must-read for any adviser. The report includes extensive data and critical analysis on the financial performance of the 26 advised platforms which together account for more than 95% of assets in the advised platform sector.

FinalytiQ's SIPP Financial Stability Guide 2017

This research benchmarks the top 16 SIPP providers who together account for more than 90% of the non-insured SIPP market.Focusing on the financial stability of SIPP operators, the guide looks at key market trends and their implications for providers, advisers and clients. You will also find extensive data on AUA, revenue, profit, profit margin, capital requirements and the ultimate P&L.

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