Is platform financial and operational strength now of even greater importance in platform due diligence?

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  • Financial strength was a factor for advisers when selecting their existing platforms, but its importance jumps when asked which factor would lead them to switch platform
  • Advisers most likely to have chosen platforms based on charges, investment options and online functionality
  • AKG has published a practical guide for advisers and paraplanners on the importance of platform due diligence and the role of financial strength as a consideration within a robust framework

Charging levels, service delivery and worries over financial strength are the most likely reasons for advisers to consider switching platform providers, finds research from independent analysts AKG. The research forms part of a new, practical guide aimed at advisers and paraplanners titled Financial & Operational Strength – its role as a foundation in platform due diligence.

The guide, which is sponsored by Aegon, finds two-thirds of advisers (66%) would consider switching provider if their charges were uncompetitive or service levels fell (66%), while 58% would consider moving over explicit concerns about financial strength, research for AKG’s guide found.

However, the research suggests that financial strength may be the most under considered factor when initially selecting a platform. It was ranked the fifth most important factor (53%) with charges (74%), investment options (71%) and online functionality and tools (59%) all deemed more important.

The guide looks at the importance of carrying out robust due diligence exercises when selecting or retaining platform partners and ensuring that such processes accommodate consideration of financial strength, sustainability, and resilience.

Practical approaches for advisers conducting due diligence are recommended, including an overarching due diligence framework looking at three core components – Proposition; Operational; Strength and Sustainability – as well as a number of ways in which advisers can go about monitoring platforms, including financial warning signs.

Research for the guide asked advisers to rank their top five factors from 11 criteria when they had originally selected a provider and then asked them to rank the importance of the same criteria if they experienced problems in any of these areas or factors.

Charges – 74%Charges – 66%
Investment options – 71%Service – 66%
Online functionality – 59%Financial strength – 58%
Range of products – 53%Online functionality – 52%
Financial strength – 53%Investment options – 46%

1What were the most important selection criteria when you selected your existing platform partner(s)?” – Respondents were asked to select their top five reasons from a list of options; 2Should you see deficiencies in, or experience difficulties with, any of the factors listed, which would cause you most concern and encourage consideration of platform switching?” – Respondents were asked to select their top five reasons from a list of options

Objectives for the guide, which is free to download at https://www.akg.co.uk/downloads, are to:

  • Produce an independent, educational, and practical resource for advisers, paraplanners and others concerned with the resilience of platforms to help drive positive customer outcomes and experience
  • Look at the importance of the financial strength and sustainability of platform market incumbents
  • Consider the potential impact on adviser businesses when and where deficiencies in platform operator financial strength, resilience and sustainability arise
  • Encourage advisers to be on the front-foot with associated due diligence and risk management processes.

The guide has not been produced specifically because of COVID-19 and its impact but this episode does coincidentally serve to further illustrate the key tenets of the guide in underlining the importance of financial strength and operational resilience in the platform sector.

Matt Ward, Communications Director at AKG, said: “Financial strength is not a hypothetical risk. Due diligence is an ongoing process and requires regular consideration. There are core approaches and key elements that advisers should have in mind when preparing a framework to conduct due diligence and this guide has been designed to provide practical support here.

Ronnie Taylor, Chief Distribution Officer at Aegon, said: “We hope this guide is a useful resource for advisers considering due diligence and the resilience of the platforms they work with. We were delighted to sponsor the guide which contains a number of instructive ways for advisers to think about these issues. Matters of financial strength and the ability of a platform to keep investing in their proposition and service have arguably never been more topical given the headwinds facing all businesses at the moment as a result of the coronavirus pandemic.

Jon Baker of Jon Baker Consulting said: “In my role as a due diligence consultant to advisers, I see a wide variety of approaches to assessing platforms. It is interesting that advisers do not rate financial strength as the top consideration when selecting a platform. Maybe they assume that because the platform is an enabler and the assets are ring-fenced if things go wrong, that clients won’t directly lose money if a platform fails. However, clients will inevitably panic if they can’t view or withdraw their money. Choosing a platform with questionable financial strength is not a client relationship risk that advisers need to face.

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