Powwow Down South discusses due diligence – where to start?
27 June 2016
The recent Powwow Down South took place in London in June. In the Question & Discussion session, a key point raised tackled the issue of due diligence.
The Question and Discussion session at the June Powwow Down South, organised by Dan Atkinson of EQ Investors and Alan Gow of Argonaut Paraplanning (pictured), brought out a fundamental question – if you are new to conducting due diligence on platforms and services, where do you start?
In answer, one paraplanner pointed out that platforms will often provide guidance on what you need to ask or areas that you need to focus on when comparing and contrasting providers. “Obviously, the information comes from providers so you need to take it with a pinch of salt, because they are going to suggest where they come out on top, but if you go to two or three of them then you will start to get a consensus.”
An experienced hand strongly recommended buying in the research from firms such as Defaqto, The Lang Cat and FinalytiQ, firms that conduct in-depth research into areas like platforms and DFMs. “They have spent a great deal of time and effort conducting that research, so why would we reinvent the wheel by trying to do that research ourselves when they can do it a lot better than us.”
The risk to the adviser firm is that something is missed or overlooked because the people doing the research in-house are not doing it on a day-to-day basis.
“The FCA want us to do the due diligence but they want it done properly,” she said. “Also, the amount of time a paraplanner can spend on doing due diligence and research is phenomenal. That is time that could be better spent doing the client work.”
For the main areas like platforms and DFM research therefore, she suggested buying in the data and where focusing necessary in-house due diligence on niche areas where there was limited or no third party research, such as the AIM market.
To the question, what do you do if an adviser used a particular platform, which research showed did not meet all the criteria, it was suggested that the paraplanner noted on the file that it was not a platform the firm would normally use and why. “That is probably all you can do because you are not the decision maker.”
Know your firm’s proposition
Another point made was that when doing due diligence it was essential “to know what your proposition is as a company”.
“Knowing the kind of service we want to deliver for our clients makes defining the criteria that are important to us a lot easier. That way when we are using research from The Lang Cat and FinalytiQ, for example, we are better able to filter down the research to see which platforms best do certain aspects and best fit the criteria that are important to us.”
“If cost is the overriding factor for your company then that will enable you to filter out a lot of the more expensive companies.”
Reference was made to a question asked at the CISI Paraplanner Conference of Chris Hewitt of the FCA, that if a platform is selected one year because it best meets all the firm’s criteria but a year later a different platform better fits the criteria, is it encumbent on the firm to shift all its business to the platform that is the best fit now. The answer was that a firm doesn’t need to move individual clients unless the client clearly would be better off, taking into account the whole upheaval of moving the business across to the new platform.
Where clients would be better off moving to a new platform but they want to stay because it’s a brand they know, etc, which would put them at odds with the best outcome for them, it was suggested that the adviser should be encouraged to talk to the client. Also, that the situation should be explained in terms and with references the client would understand, such as comparing moving to the way they would book a holiday or purchase car insurance, where often the price could be considerably cheaper by going with a company that was less familiar to them.
Powwows are held under Chatham House rules which allows for reporting of what was said at the events but not who said what.
For more coverage of the Powwow, see pages 6-7 of the July/August 2016 issue of Professional Paraplanner.
You need to know the difference between execution-only and non-advised sales and what client instructions can be enacted under...
The Senior Managers and Certified Persons legislation comes in on 1 December but to what extent does it apply...
Lime Outsourced Paraplanning director and owner Rebecca Lucas has launched an online interactive tool which will allow paraplanners to...