About this guide
The decision to build and manage an investment platform is a big one. As well as plenty of potential, it carries with it complexity, ambiguity and a good deal of responsibility, too.
In this guide, we’ll delve into the ins and outs of operating a platform.
We’ll explore some of the reasons and rationales for doing so; tackle head on some of the key questions you’ll want to ask; and outline the additional roles and responsibilities that this exciting step will bring.
While we hope you find it useful, we realise there’s no substitute for having a conversation.
So if you have any questions about what you’ve read, or want to talk through some of the issues it raises, don’t hestitate to get in touch. We’d be more than happy to help.
Why operate a platform?
Take control. Boost efficiency. Become more valuable.
Is technology holding you back?
Many advisers, wealth managers and discretionary investment managers are growing frustrated with the platforms that they use.
According to the FCA, there were nearly 10,000 complaints lodged against platform operators in the first half of 2019 (FCA, ‘Aggregate complaints statistics: 2006 to 2019’ (September 2019)); while the number of advisers changing their preferred platform has increased exponentially, from 10% in 2016 to 25% in 2018. (Defaqto, ‘Platform service review 2019’ (February 2019))
And it’s not hard to see why. Existing platforms rely on old, inflexible technology that creates inefficiencies at every stage:
- Integration is painful and expensive. As a result, firms end up rekeying client data between tools – wasting time and money, and increasing the risk of manual error
- Administration is difficult. The platforms themselves are clunky and difficult to use, and many processes aren’t automated – relying instead on large teams of admin and support staff that raise cost and throw in yet more opportunity for mistakes
- Change is hard and slow. Most platforms are powered by a small number of large software providers who oversee and maintain a growing set of disparate code bases – meaning new features and functionality are slow to develop
Add to the mix the growing downward pressure on fees from clients, and the business case for ditching the existing platforms altogether – and choosing to operate your own one instead – is growing day by day.
Democratising the platform market
Businesses with the right permissions (see p.6) have always been able to operate their own platform – in theory.
But it’s typically been so costly or disruptive as to make it the exclusive option of large firms or national networks. Instead, the only realistic option has been to ‘white label’ an existing platform.
In this context, customisation rarely goes beyond changing the look and feel of the user interface, and there’s often little opportunity to shape the customer journey or end client experience.
What’s more, because these platforms are, more often than not, built on technology that’s provided by one or another of a small number of core technology providers, it’s difficult to influence product or feature decisions.
At Seccl, we want to democratise the platform market – bringing the options of ownership, scale and efficiency to more and more firms of all sizes.
Our custody, settlement and trading service, when coupled with our easy-to-use professional and client- facing interfaces, mean operating your own platform has never been as easy, cost-effective, or potentially transformative.
Helping you take control
You know your clients – and your business – better than anyone. So why should the decisions that affect them be driven by a platform over which you have little control?
By choosing to operate your own platform, you can…
- Provide a seamless experience for your clients. Want to make sure you’re the one and only point of communication? Now you can.
- Build your platform around your clients – structuring and servicing them exactly as you wish. Want to run a small bank of direct, execution only customers alongside your core clients? Go ahead.
- Build your platform around your processes. Want to make sure
it integrates with the business tools you use day-to-day? Your own platform makes it possible.
At a glance: operating a platform could help you…
Own client relationships
Stay in control of all aspects of client communication and interaction
Own the value chain
Reduce your cost base, boost your revenue and build your firm’s value
Be more efficient
Fewer manual processes and less dependency on old, inflexible tech
Stay joined up
Integrate your platform with other key systems in your business
Delight your customers
Deliver a better user experience and pass on savings to your clients
Get buy or sell ready
Put tech systems in place that make it easier to sell your book, or buy others
By operating their own platform, firms no longer have to settle for ‘white labelling’ an existing offering. Instead, they can own and shape the customer journey from start to finish – offering
a better service and becoming a more efficient business in the process.
You don’t have to be big, but you do have to be ready…
The decision to operate your own platform is a significant one, and won’t be right for every firm. Before taking the leap, it’s worth asking a few key questions of your business…
Are you prepared for the extra responsibility?
By becoming a platform operator, your business will be voluntarily taking on a number of additional roles and responsibilities. We’ve outlined some of the more significant ones on pp. 13-17.
It’s hugely important that you’re aware of and fully understand these extra responsibilities – and that you’re comfortable you have the right people and plans in place to deliver on them.
Do you have the necessary permissions?
There are definitely regulatory implications with operating a platform. In particular, it’s likely that you’ll need the following permissions:
- Arranging (bringing about) deals in investments
- Arranging safeguarding and administration of assets
- Dealing in investments as agent
- Making arrangements with a view to transactions in investments
It might be that you already have these permissions by virtue of your usual course of business (for example if you’re already a discretionary investment manager).
Or it might be that you need to apply to the FCA to have them added (more on that opposite).
Do you have the required capital?
You might be required to hold more capital in reserve by deciding to operate your own platform.
Whether or not you do will depend on your existing status and business model – and the future scope of the assets that would be administered on your platform.
If you are a BIPRU or IFPRU investment firm, you will already be required to develop and maintain an Internal Capital Adequacy Assessment Process (ICAAP).
The decision to operate a platform may not, in itself, fundamentally change your capital requirements calculations or processes (although you will have to account for the change in business model in your ICAAP). But if the assets of another firm (or many firms) are to be managed through your platform, then you’ll likely need to hold additional capital.
It’s important that you seek qualified, independent advice before operating a platform,so that you are sure of what permissions you may or may not need – and are fully ready for the responsibilities it entails.
How do you get the right permissions?
We asked James Dingwall, Founder and CEO of compliance specialist Thistle Initiatives, to explain…
Becoming a platform operator is a big step. It will take your business in a new direction and involve you taking on significant additional responsibilities.
It’s essential that your decision stems from a genuine desire to improve the service you provide for your clients.
Provided that’s the case, firms who would like to operate their own platform, but who don’t have the required permissions, essentially have two choices on how to obtain them.
Many may prefer to establish an entirely new corporate entity, to minimise the potential for conflict and help simplify their accounting. Applying for the relevant permissions, in this case, costs £5,000 in application fees to the FCA.
Alternatively, firms can apply for a Variation of Permissions for their current business – a path that will cost them £2,500 in application fees to the FCA if they are adding a new fee block.
In both cases, the FCA will make a decision to accept or reject your application within six months (provided it’s complete – otherwise it’s within 12 months).
Visit thistleinitiatives.co.uk to find out more
What are you hoping to achieve?
It’s always vital to take the time to fully consider your requirements before kicking off a replatforming project.
But it’s particularly important if you’re considering operating your own platform, as it will help you to identify any additional, perhaps unexpected, considerations at the outset.
For example, you might be a discretionary fund manager (DFM), or a financial planning business looking to gain discretionary permissions. For you, your priority might be to take control of your own processes – moulding your platform technology around your business, rather than the other way around.
While efficiency will no doubt be a big driver, you may still find that you’ll need to find more administrative resource to fulfil your new responsibilities (see pp. 13-17).
And in any case, you’ll want to consider the systems training that you put in place for your support staff.
Or it could be that you’re a DFM looking to build a platform which makes it easier to manage your discretionary models – but which could also prove valuable to the many financial advice firms who use your investment proposition.
In this case, have you considered the additional staff you might need to hire to support the advisers who are using your platform?
Or perhaps you’re a DFM or advice firm looking to launch a direct or execution only business alongside your existing advised client bank. Have you thought about the impact that working with this new type of client segment will have on your KYC/AML responsibilities?
Of course, things change – and it can be difficult to predict where your business may be in a few years’ time. But by planning as far ahead as you can, you’ll be well placed to prepare your organisation for change.
That’s why your Seccl account manager will work with you to uncover your own unique objectives, helping you to move to the platform structure that’s right for you. (There’s more on our onboarding process on pp. 18-19.)
Seccl & Octopus: a meeting of minds
As a fast-growing and ambitious technology business, we work at pace – releasing new technology every fortnight.
Our fast, flexible and efficient structure means that firms of all sizes can shape the product development roadmap and request new features or functionality – to an extent that simply wouldn’t be possible with larger, more traditional software providers.
But our speed and agility comes with robustness and longevity, too, thanks to our recent acquisition by the Octopus Group.
Founded in 2000, Octopus now manages approximately £9.1 billion of assets (as of 31 December 2019), and is known for its innovative problem-solving investments and five-star service to financial advisers around the UK.
For more information about the businesses that make up the Octopus Group, head to octopusgroup.com
Owning and operating a platform won’t be right for every business.
For some firms, the additional administration involved with operating a platform may be too much of a stretch – or too great a distraction from the core day-to-day business of delivering exceptional client care.
But that doesn’t mean that they can’t look to benefit from the economy and efficiency that comes with operating a platform on cutting-edge technology.
Those with less resource could, for example, partner with other firms to co-create a platform, sharing the costs and responsibilities.
Or they could choose to work with a panel of approved platform operators, powered by Seccl.
How does it work?
By working with Seccl, firms can appoint us to handle some of the traditionally more challenging aspects of operating a platform, like custody and client money, to focus on the all-important job of giving a great service to their clients.
A new operating model
As we’ve seen, operating a platform has traditionally been unthinkable for most advice firms or investment managers, due to the high costs and barriers to entry. But our technology means it’s simpler and more affordable than ever.
Under our model, firms can appoint us to fulfil all client money and custodian obligations, along with the technical process of trading and settling investments. In turn, we provide them with a professional client management user interface (or ‘Professional UI’) through which their users can set up, service and manage portfolios on behalf of clients.
Clients benefit from an improved, streamlined and invariably cheaper platform service, delivered by someone they know and trust. While firms reap the rewards of a more efficient, easy-to-use platform built around their business and run under their control.
As frustration with existing players rumbles on, and the pressure on advisers to justify fees across the entire value chain continues to mount, we believe that more and more firms of all shapes and sizes will begin to consider the merits of becoming a platform operator for the first time.
The FCA defines only one role when it comes to the provision of an investment platform – namely that of a ‘Platform Service Provider’ (see excerpt below).
Under an adviser-owned platform model, both parties share responsibilities (see the next few pages for more info), with Seccl providing some of these services and you as a ‘platform operator’ fulfilling others. We’ve outlined the permissions we think you’ll need here.
What’s a Platform Service Provider?
A firm providing a service which:
- involves arranging and safeguarding and administering investments; and
- distributes retail investment products which are offered to retail clients by more than one product provider;
but is neither:
- solely paid for by adviser charges; nor
- ancillary to the activity of managing investments for the retail client
So who does what? Roles and responsibilities
Knowing where our responsibilities end and yours begin can get a little tricky. That’s why, over the next few pages, we’ve outlined exactly who does what at every stage of the client journey.
1. Platform creation
A key incentive to operating a platform is the opportunity to control its make-up. One of the most important of your early roles, then, will be to define your platform proposition – for example the pricing, wrappers, investment universe, distribution strategy, target market – and choose which elements of system functionality you’ll require.
In turn, our role will be to assist in implementing the look and feel of the platform.
We’ll also provide terms and conditions for our custody service, to be incorporated into your own platform terms and conditions that your clients will need to sign with you.
We can also assist with your other key policies (for example your privacy, data protection and conflicts of interest policies) – but you’ll be ultimately responsible for them.
“Clients benefit from an improved, streamlined and cheaper platform service, delivered by someone they know and trust. Firms reap the rewards of a more efficient, easy-to- use platform built around their business.”
2. Investor set-up
It’ll be your job to set up clients via the Professional UI, as well as to gain and record client acceptance of these terms and policies (which can also be done through the UI as part of the client set-up process). This includes clients’ ISA declarations, which though technically the obligation of the ISA manager – us, by default – will be delegated to you to fulfil at the point of client set-up.
You will be responsible for initial and ongoing KYC, AML, PEP and sanctions screening. However, as regulated custodian, our AML responsibilities are equal and equivalent – and so while we’ll place reliance on you to perform adequate checks, we’ll need to understand and take comfort from your own processes.
For this reason, we’ll need to conduct due diligence on your policies and procedures, and carry out regular audits to make sure robust controls are in place.
For the avoidance of doubt, you would be liable for costs or losses arising from fraud or criminal activity.
3. Client servicing and communication
You will be the first point of call for all queries and calls from advisers using your platform; while all retail client servicing will be handled by your platform users themselves (for example advisers, paraplanners, administrators and operations staff).
We will provide the infrastructure that will support ongoing service and client communication – including providing template service messages – but we will not market to or otherwise communicate to clients directly.
Advisers will be able to select assets from a pre-defined universe which you, as platform operator, will control – with close-of-business pricing and fund data provided by us.
We will automatically provide Key Investor Information Documents (KIIDs), contract notes, valuation statements, consolidated tax vouchers and product cancellation notices via the secure messaging hub in each client’s portal.
You’ll be able to instruct cash or in-specie transfers through the Professional UI – which we will facilitate and report on via our transfer gateway integrations with Altus and Origo.
5. Product provision and governance
We will provide a SIPP wrapper through specialist third- party wrapper provider, Gaudi, but also support other third-party products (be they pension or otherwise). By default, we will operate as ISA manager – but we’re open to platform operators assuming this responsibility instead.
The ongoing governance and review of wrappers, products and instruments, in accordance with PROD, will fall to you as platform operator.
6. Trading and settlement
The trading and settlement of investments is one of our core services, which we will fulfil via our nominee company, Digital Custody Nominees Limited.
At the point of contracting with us, you will define the asset universe in which your platform users will be able to trade. Our fund list spans over 1,000 funds from over 100 fund managers – and additional funds from providers with whom we have an existing relationship can be quickly added.
We’ll always investigate ways of working with new fund managers upon request. We’ll base our decision on whether we can administer the asset compliantly and digitally.
We will handle all aspects of fund administration, facilitating order execution through Calastone for funds and Winterflood Business Services for exchange traded instruments. Our order execution policy will form part of the terms you’ll need to sign with your clients. We will also oversee all distribution agreements with fund managers, too.
Using the Professional UI, DFM platform users will be able to create and maintain model portfolios, link them to client accounts, and rebalance them at any time.
7. Cash management
Cash management is a core Seccl service. As such, we will handle client money in our dedicated client money account, support all payments and withdrawals, undertake all dividend reconciliation and payments, and facilitate corporate actions.
Advisers and other platform users will be able to move client money between accounts and wrappers via the Professional UI.
We will calculate and deduct client-level service fees on your behalf, based on their daily portfolio valuations during the previous month. Our fees will be invoiced directly to you, outside of client portfolios. We will also pay adviser fees directly to any firms using your platform (but will need you to provide their bank details in order for us to do so).
We will provide you with the standard MI reports that you would expect as a platform operator.
And we will provide all regulatory reporting and alerts required of us in our role as custodian (and ISA manager, if applicable) – including CASS returns, transaction reporting, suspicious activity, regulatory breaches, all MiFID reporting, and pre- and post-sale illustrations. You will then be responsible for fulfilling any onward regulatory reporting that’s required of you.
For DFMs, our system is able to help you fulfil your regulatory responsibility of alerting clients if there has been a 10% drop in the value of their portfolio.
As an FCA authorised firm you’ll have to provide your own returns to the FCA (or provide them via your Principal if you’re an appointed representative).
Finally, as joint data controllers, both registered with the Information Commissioner’s Office, we will each need separately maintained privacy and data policies – and will both be responsible for complying with the relevant responsibilities and duties under the GDPR.
9. Ongoing support
As platform operator, you would be responsible for providing day-to-day system support to users of your platform (for example password resets or simple ‘how-to’ explanations) – while we will of course handle more sophisticated queries, system fixes or functionality updates.
10. Compliance and audit
As mentioned, we will need to conduct due diligence on your AML/KYC processes and procedures, to gain comfort that adequate systems and controls are in place.
By the same token, due diligence, governance and oversight of the platform services that you appoint us to provide will need to be undertaken by your compliance function (though we will happily support by providing any information you might need).
You will also have to evidence that you have fully considered the platform market, and that your decision to move clients onto your own platform is indeed suitable in each case.
Any replatforming project brings challenges. That’s why we try to make the journey as smooth and as simple as we can, every step of the way. So, how do you get started?
1. Demo and test
If you’re interested in learning more about how Seccl could help your business, the first step will typically be to arrange a live demo with one of our technical support team (though you can watch some short intro demos here).
They’ll be able to give you a quick tour around the Professional UI – and answer any questions you might have about the service.
But we think there’s no substitute for experimenting with a tool yourself, so we’ll also set you up on a unique testing site.
This will allow you to experiment, in your own time, with all aspects of day-to-day platform management, like setting up a client; creating wrappers; moving cash and making recommendations.
2. Onboarding and set-up
Once you’re happy you’d like to proceed, we’d then move to a contracting stage, during which we calculate the final pricing, based on your expected usage.
At this point we would begin a full technical set-up, as well as work out how best to transfer clients across to your new platform.
To guide you through this stage, we pair all new clients with a dedicated account manager.
Working on a quasi-secondment basis, this individual (or team, depending on the complexity of the project) will be responsible for overseeing your transition.
They’ll help you to set up your technology and to train your team, and make sure all transfers happen as seamlessly as possible.
3. Ongoing support
Once live, our online FAQs, tutorials and user guides are designed to help new or returning users find their way around their platform; while our client support staff will be on hand to help tackle any issues that require more dedicated support.
We aim to respond to all queries within two business hours – and resolve all live client issues within 24 hours.
In time, we’ll also publish our product development roadmap and allow customers to easily make and prioritise feature requests.
Ready to begin?
- Have you got the right permissions?
- Are you clear on all the responsibilities?
- Have you put together the business case?
- Do you know how you’ll structure the business?
- Have you considered how you will price it?
- Have you fully costed the ongoing management?
- Do you have the right skills internally?
- Have you got enough support staff?
- Have you put together a training plan?
- Is there strong governance and oversight in place?
If you’ve considered the options, worked through the implications and decided that operating a platform is right for you, then we would love to help – get in touch today and let’s get started
We want to empower a new generation of forward-thinking financial planners, advisers and investment managers to give the next level of service to their clients. By putting you in control of your own platform, our technology aims to do just that.