11 February 2015
Gareth Johnson, Head of Managed Investment Services at Brewin Dolphin discusses platform due diligence.
The relationship It is what’s on the inside that counts says every parent to their children, as they try to navigate them away from the frivolity of choosing a lifelong partner based on aesthetics. Those worldly wise parents realise that, in part, a successful relationship will be built on a platform of shared interest, values and a commitment to work through the good times and the bad! As those blonde haired, blue eyed platforms continue to flutter their eyelashes at us, handsome, DFMs, it might be wise the remember the words of our parents!
As I interact with the heads of platforms, it seems there are three approaches to platform due diligence by DFMs
The Tinder approach
This is based purely on looks and is ultimately, where the marketers show their worth. Shallow, superficial and vain, DFMs could be coerced into a relationship just because of a shiny new platform.
The Match.com approach
This is bit more detailed and perhaps includes some key requirements – do you want all your models rebalanced while sharing a love of classical music? Boxed ticked.
The speed dating approach
The face to face approach in 3 minutes. Consultants are good at this, the elevator pitch .. sell yourself in three minutes and if I like the look, we’re on … because of course, we are really too busy to really get to know you.
If I have not looked into the whites of the eyes of the head of a platform (candles and dinner optional!), we simply would not move forward with a platform relationship. That being said, it is most surprising the number of platforms that simply roll out a highly polished business development individual, flutter some website in front of us and tell us all about the relationship they want to have with us and assume that is where the date ends. Rarely are the proposition guys involved and rarely do they dive beneath the bonnet to show off their tech and demonstrate the scalability and efficiency.
The platform industry reminds me of the car industry. It might be an Audi or Bentley, Bugatti or Skoda but ultimately, it is the Volkswagen Group. It could be Toyota but if it is a Luxury Export to the United States, you might just be driving a LEXUS. It might be AXA Elevate, Standard Life or Zurich, but underneath it is FNZ. You like the brand and longevity of Aviva or you favour the new kid on the block in Nucleus ultimately, it is Bravura. And of course, platforms don’t come off the shelf so a Novia version of GBST looks different to the custom built Aegon platform which also uses GBST. We have not rolled out platform distribution nearly as quickly as some of the other DFMs but we are proud of that.
The due diligence we complete on platforms is comprehensive, robust and repeated. And some platforms fail it! It also evolves. The prodding and probing is uncomfortable and at least one platform head has had to admit their platform did not work in the way they expected it to. Platforms are built for advisers and that is fantastic, but we are not advisers. You might have a fantastic front end for data capture, but I don’t have any relationship with the underlying client so why is that relevant? Can your platform handle a rebalance for thousands of clients and their model portfolios? What happens if transactions are in flight? Are the assets available on your platform available across all wrappers? We have seen increased flows into our models portfolios and we have a responsibility to our advisers and their clients to ensure that the technology works. If we want to rebalance our models on a monthly basis but the technology doesn’t work, that doesn’t sound like a good outcome for clients. Equally, if it goes wrong .. and it does .. the structure is such that remedial action is swift and ensures there is no client detriment. Advisers are expected to do their own due diligence on platforms but we feel there is a real need for us to give them the additional reassurance we have the right risk and controls procedures in place.
So the next time you sit down with your DFM, ask them about the due diligence they undertake on platforms because, quite simply, it matters.
-ENDS-
The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents.