Nucleus’ Neilson: Time to boost adviser due diligence on DFMs


DFMs should be subject to the same level of scrutiny by advisers as they already carry out on the platform market, according to Nucleus business development head Barry Neilson.

His comments come after a recent paper by the Financial Conduct Authority (FCA) found that while advisers’ overall due diligence was good, they were failing in some areas of their checks on platforms.

But Neilson (pictured) believes it is DFM services, rather than platforms, which now need to be subject to more stringent research by the adviser community.

He said: “We are already receiving due diligence papers which are 10-20 pages long from advisers but I doubt the due diligence for DFMs is anywhere near that long. Advisers should do the same amount with the same level of rigour.

“There is a need for advisers to continually evolve their due diligence, particularly in the run-up to MiFID II.”

He added advisers need to be clear about their target audience, and highlight the benefits of a platform for the client, as well as for the business.

Moving onto the impact of the sunset clause, which will come into force this April, Neilson said advisory-focused platforms, compared to those with a D2C proposition, were likely to struggle with an increased volume of orphan clients. This is particularly problematic as platforms will be unable to charge any extra costs for the additional work.

“If you are set up to deal with advised clients then it will be difficult if you are left with lots of orphans. Platforms cannot kick them off, nor can they instantly take them out of products such as bonds as this will have tax implications, so they will have to find an alternative way to service them.

“Platforms are already under scrutiny over conduct risk and this will be more difficult if they are left with orphans who are not being looked after by anyone,” he said.

[Source:- Investmentweek]