Only if there is nothing suitable, or solutions are uncompetitive in terms of price, will the firm have to look off platform, or to another platform. However, this is not a get out clause so advisers still need to be sure that both the platform solution and the discretionary solution are suitable in all key aspects.
Due diligence – the fundamentals
There have been acres of column inches written on what should comprise good due diligence. In essence, this has never changed and to a great degree is just common sense. The FCA (FSA as was) formalised this in final guidance paper FG 12/16 and listed the minimum level of due diligence for the investment options within adviser firms’ centralised investment proposition (CIP):
| When adopting a CIP, firms may wish to consider: |
Terms and conditions of using the CIP CIP’s charges CIP provider’s reputation and financial standing Range of tax wrappers that can invest in the CIP Type of underlying assets in which the CIP invests CIP’s flexibility and whether it can be adapted to meet individual client’s needs and objectives CIP provider’s approach to undertaking due diligence on the underlying investments |
Going deeper
Of course, since the final guidance paper referenced above, the regulators have focused on encouraging much deeper due diligence, but again nothing that should not already have been undertaken as a matter of course when entrusting client money to a third party. The kind of due diligence may include:
■ Investment style – risk targeted, return focused, absolute returns, top down/bottom up
■ Investment process – research (proprietary or third party), governance, house driven, committee/individual influence
■ Investment philosophy – active, passive, blend, investment vehicles used collectives or individual securities), time horizons, sell disciplines
■ Investment team – experience, specialities, support, resource
Any other information that will give client and adviser confidence that the discretionary manager can run the portfolio successfully to mandate, that is suitable for the client, remains suitable over time and gives the best chance of achieving the outcomes a client expects, should be explored.
The Outsourcee becomes the Outsourcer
Almost by definition, a portfolio sold by the DFM directly will not be precisely the same as the equivalent distributed through a platform. In essence a DFM is (sometimes reluctantly) outsourcing elements of service, administration and custody to the platform.
As mentioned, a number of the MPS on platform services have only been launched in the last couple of years. This being the case, sometimes the only option is to look at the directly available equivalent as a proxy. In the majority of cases this will be more than adequate, but advisers still need to be aware of, and take in to account, the potential differences. Key areas to consider include:
