In our three-part blog we look at the area of Platform Due Diligence and Centralised Investment Proposition (CIP). We have noticed a spike in requirements from firms to shore up these areas and ensure they are working to a well-defined set of guidelines.

Our first consideration this month is the ‘why’ for firms approaching these two areas.

In the next two posts we will look at ‘what’ in terms of the FCA guidance and ‘how’ in terms of constructing and approaching your due diligence.

Five key benefits for ‘why’ you should consider putting a Platform Due Diligence and Centralised Investment Proposition in place are:

Business Process

  • Integration with the ‘product governance’ (PROD) requirements to formally categorise your clients and give the firm a clear focus with existing and prospective clients.
  • A CIP and central Platform Due Diligence will give the business a set approach to use, reducing the need for individual client research and therefore increasing efficiency.

Consistency

  • Advisers across the firm are on the same page in how they provide for clients. The FCA have highlighted the inconsistency in recommendations between advisers at the same firm as an area of concern
  • Oversight: It allows the firm to know how the advisers across the firm (geographically separated in many instances) are operating with the investment advice they give.
  • The way in which a firm reports to and reviews clients as part of the ongoing service can be streamlined with a defined CIP in place.

Reduces Risk

  • Due diligence on your choice of platform(s) can allow you to make sure you use the providers with the features most important to the firm and your clients.
  • Demonstrable evidence of why a platform/investment was selected for a particular client. This can help avoid accusation of ‘shoehorning’.
  • The firm can justify, many years later, the use of a particular platform/investment in a recommendation and this might not be as clear when working from scratch on every client.
  • Effective due diligence proves selection of the platforms/investments the firm uses was done in good faith and based on the publicly available information.

Ongoing Servicing

  • No more fund picking for each and every client, and no requirement for monitoring a multitude of portfolios and platform propositions to determine ongoing suitability.
  • Ongoing services can be streamlined around the CIP in place. The firm can define the client engagement proposition in a more effective and uniform way.

Focus

  • A well defined CIP frees the adviser up to provide the advice the client values. Typically and with the way the financial services is progressing, this allows more financial planning engagement incorporating ongoing tax planning, cash flow/lifestyle analysis or a combination of the two.
  • The firm also need not spend continuous time on determining platform and investment approaches. An annual review of the process will allow the firm to allocate resources around the rest of the year to other requirements.

The main risk around the use of a centralised platform and investment proposition is ‘shoehorning’. The FCA have repeatedly voiced concern over the practice of bringing clients into the platform/investment proposition where there is no evidence of this being suitable.

Centralised Platform and Investment propositions should always give the firm an approach to work with should the client fit within the identified segment. Any clients who do not fit or who have different requirements should also have a bespoke solution, backed up internally, justified for the need.

As long as there are safeguards in place to ensure shoehorning is not an issue, the benefits of centralisation can be substantial.

Platform Due Diligence & CIP – Part 1

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