The uncomfortable truth about industry research tools

You run a successful advice practice.

Your clients are happy. They trust you and they value the service and the recommendations you make.

The products you recommend are from large, well-known providers. FTSE 100 names, or close enough. You have used them for years without a problem. You have visited their offices, met the team, and to be belt and braces run them through an industry research tool.

So you feel pretty confident nothing will go wrong.

And it probably won’t.

But what if something did go wrong? Something you could not reasonably anticipate. A failure that is not in the brochure, not in the glossy quarterly update, and not evident on the day you went to the provider’s headquarters.

When it happens, who will clients and the regulator look to for answers?

You.

And when they turn their gaze to you, will what is on file be enough?

The FCA has been clear. If firms are to deliver good outcomes for consumers, advisers need to undertake research and due diligence that assesses the nature of investments they recommend, their risks and benefits, and whether the product provider is appropriate for the client’s assets.

So, is the provider’s size enough? Is meeting them enough?

Even if you use an industry research tool, it is worth asking; Who is the client of the research tool?  You or the provider themselves?  Who sets the questions?

If the provider pays the research company to be included, how closely does that align with the FCA’s expectations around independence, challenge and consumer outcomes?

Are you relying on answers the provider is comfortable giving, or are you getting to the truth.

In its review of investment and platform due diligence (TR16/1), the FCA found that firms who got it right had a strong culture of challenge.

It also found, however, that firms need to manage conflicts properly. In some cases, the service received by the adviser firm from a platform was treated as more important than the service received by the client. In others, firms stopped reviewing platform options altogether because they were content with what they were getting from the existing provider.

That is not malicious. It is human. Comfort becomes habit. Habit becomes policy and then something breaks.

So how can you be sure you have robust due diligence on file if the worst happens and somebody asks what you did to anticipate consumer harm?

The answer is to go deeper yourself.

Look beyond what the provider is comfortable to provide and test what you are being told. Ask questions about their history, legal structure and ownership, including recent and planned changes. Analyse their financial position. Understand their corporate philosophy and succession plans. Examine staff turnover and risk culture. Confirm what professional indemnity cover is in place. Identify what services are outsourced and what their disaster recovery plans look like and all the other “small” things that become very large when something goes wrong.

Then move to the practical detail clients actually experience. Product functionality, investment range, governance, reporting, switching processes, family linking, service levels, complaint handling and so on.

Independent, in-depth due diligence may not change your view of a provider. But it often uncovers information you would rather know now than discover later.

For example, would you be concerned if a discretionary or MPS provider had a registered financial charge against it from another investment firm? It may be entirely benign. It may have a perfectly reasonable explanation. But should you know about it?

Emphatically Yes!  Was it in any of the provider’s brochures or even the research tools?  Emphatically NO!

That’s exactly what happened when we did due diligence for a client of ours on an MPS provider they had been working with for years.  It opened a conversation that needed to be had!

Practical steps you can implement now

• Create a “challenge checklist” for every key provider. Include ownership, governance, financial resilience, outsourcing, operational risk, and recovery plans.

• Document why the provider is right for your client base, not just why it is a good provider in general.

• Do one deep-dive review annually and lighter-touch updates quarterly or on trigger events.

• Define trigger events that force a review. Ownership change, key personnel exits, service deterioration, major complaints, regulatory action, or financial red flags.

• Write down the uncomfortable questions and ask them anyway. Then keep the evidence on file.

You are entrusting client money and your hard-earned reputation to a third party. It is not unreasonable to ask hard questions. It is prudent.

Just because the bomb in the basement hasn’t gone off doesn’t mean it isn’t dangerous.

No provider is going to volunteer that there is a bomb downstairs. But if you ask, record the answer, and evidence the challenge, you can show you took reasonable steps to avoid harm to your clients.

That is the point of due diligence. Not to predict every failure, but to prove you acted like someone who understood failure was possible.

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