On 19 February 2016 the FCA published TR16/1: Assessing suitability: Research and due diligence of products and services within which they set out the high level findings of their thematic review of the research and due diligence processes carried out by advisory firms on the products and services they recommend to retail clients. This was not a long paper by FCA standards and, if they haven’t managed to do so yet, advisers should ensure that they get access to the paper on the FCA website.
FCA considerations within the paper included, for example, exploring how:
- firms selected products, funds, platforms and discretionary investment management services
- created panels and centralised investment propositions (CIPs)
- considered options for individual clients.
There was an emphasis in the paper that due diligence processes need to be robust, repeatable and recordable. And crucially that the suitability of solutions should be gauged at both a customer level and at an adviser business level.
AKG has been assessing the financial strength of platform operators for a number of years and hence we also have a keen interest in this sector. We seek to provide advisers with support in their platform due diligence activities from a specific standpoint, something that we illustrated to advisers in our Financial Strength in Adviser Due Diligence which was produced in collaboration with the Personal Finance Society (PFS) in August 2015. The guide can be accessed from the Good Practice area on the PFS website.
The broad regulatory focus of the FCA, within a mandate of customer protection, is to rightly focus on positive customer outcomes. In many ways this is what good adviser practice within a foundation of initial and ongoing research/due diligence also seeks to achieve in how it concludes which providers and products/propositions/services will best serve customers’ needs. Thus we believe that a financial strength assessment as part of the due diligence process should have the following objective definition:
… to go beyond purely a consideration of solvency (albeit this will always be an important part of the mix) and consider in what format an organisation may be able to survive to meet the fair expectations of customers and their advisers. Expectations, which must include the experience encountered by these two groups, will therefore include ongoing operational abilities and performance.
AKG currently assesses 25 platform operators. The overall financial strength ratings for each of these can be found at the AKG Rating Portal. AKG assessment reports are available for 21 of these platform operators. These can be purchased from the AKG website on an individual or bulk basis.