25 November 2019
On 5 November, FNZ completed its acquisition of technology rival GBST, amidst ongoing speculation around the potential implications for the platform market.
It was just the latest in a series of commercial developments in the advised platforms sector over the past few years. In October, for instance, Bravura announced its acquisition of financial software provider FinoComp1 and – closer to home for us - Embark agreed to buy the partnership and advised books of Alliance Trust Savings.
What might deals mean for platforms?
Merger and consolidation moves at the platform provider level have obvious implications for clients and advisers, but those involving underlying technology providers could well impact too.
Some platforms, like Transact and Parmenion for example, use proprietary technology for their core elements but many others are built around FNZ, GBST and Bravura technology. And figures show that FNZ-GBST combined will cover more than half the market share of platform assets and more than 70% of platforms that currently use an outsourced technology provider.2
FNZ positions its acquisition of GBST as a good strategic fit and the start of an exciting opportunity for both businesses to expand their complementary product and service offerings in the wealth management and capital markets.3
Platform developments and platform choice
Whatever transpires over the coming months and years, the FCA’s expectations around platform due diligence mean advisers will doubtlessly be watching all developments at both the technology and platform service provider levels very closely.
In its 2014 thematic review, ‘Supervising retail investment advice: Delivering independent advice’, the Financial Conduct Authority (FCA) said regular reviews of product and platform panels were among the three main steps that firms should take to ensure they stay on top of market developments and suitability requirements.4
That requirement was underlined in Factsheet 012, in which the FCA explained its expectations around due diligence of platforms. It included a reminder that “developments in the market could mean that your chosen platform provider(s) may not remain the most appropriate option for your business or clients...You may need to carry out periodic reviews”.5
Those reviews should entail a “genuine assessment” of platform recommendations that have been made, according to the FCA’s 2016 ‘Assessing suitability’ review. It made clear that “retro-fitting due diligence to justify the outcome the firm had already previously decided upon” would be cause for concern.6
It all comes back to suitability
Responding to developments will not always necessitate a change in platform choice. The key requirement is, of course, to understand and review the implications of each development and how they may impact the suitability of your choice of platform partners at both the firm and individual client level. It’s also essential to be able to demonstrate and justify the outcome of such reviews, whether or not action is taken as a result.
In its interim Investment Platforms Market Study report the FCA highlighted reasons advisers said they might recommend a platform switch. These included: where a different platform with a different pricing structure would now be better value for the client’s circumstances; where functionality was needed for the client that wasn’t currently available and where there had been issues with the service provided.7
The regulator’s 2012 guidance on "Assessing Suitability: Replacement business and centralised investment propositions" is still relevant to any situation in which a switch may be recommended. It notes that “Clients typically wish to make a return on their investment”, gives charges as one of the three main factors that can influence returns and goes on to say “where a more expensive solution is recommended, there needs to be a good reason and this reason needs to be justified to the client.”8
A role for PROD?
By offering a framework for thinking about platform relationships in the context of suitability and client outcomes, this is where PROD - the Product Intervention and Product Governance Sourcebook9 - could prove useful. PROD requires firms (including advisers) to check that existing products (including platforms) still function in line with the needs of the target market. That idea of target market segmentation at the heart of PROD could be viewed as a good basis for assessing and selecting platforms (and recording that process).
One thing we can all be sure on is that having an effective approach to platform due diligence and suitability has risen up the regulatory agenda in recent years. As the FCA has made clear, advisers have a duty of care to keep abreast of developments and to understand the possible implications of any change affecting a platform’s proposition. It’s an essential part of making appropriately informed decisions about any follow-up action for your clients and your business.