Following the FCA's report on adviser due diligence, Nucleus business development director, Barry Neilson, warned advisers they should not be complacent with their procedures simply because there was a lack of detail from the regulator.
The FCA raised concerns that some of the 13 advice firms it reviewed picked platforms based on the services that benefited the adviser using them rather than the end client.
Neilson is urging advisers to write out two lists when conducting platform due diligence: one listing all the services that either directly benefit or indirectly benefit clients and one that lists all the services that only benefit the firm.
For example, platforms enabling advisers to do administration quicker and cheaper has an indirect benefit of leading to lower costs for clients.
Neilson said:
“The FCA’s paper only looked at 13 firms, so not the most robust research and it did not look at client files, so it was very theoretical. We expected it to have more guidance and best practice to help advisers.
“The really important point is advisers should not get complacent because the paper lacked detail, because when Mifid II kicks in we will almost certainly see a more prescriptive environment with greater emphasis on product and platform selection.
"In most instances the clients end up paying for the platform. So it is not sustainable if clients end up paying for advisers’ benefits. Advisers need to understand and clearly record when something benefits them but also ultimately benefits the client as a result. Firms need to document why a platform’s service has a positive impact on its clients.
“Advisers must not pick a platform purely because it creates greater convenience for them when there is no benefit to the client. That will come under increasing scrutiny from the regulator.”
