Those areas are:
- Compatibility – In simple terms, will the technology do what you want it to do? For smaller firms, consider how many current users there are. Do you know anyone that uses it and how do they find it? This is the most important area of due diligence; you do not just want it to do what you need it to do, but do it well. If the software is providing you with information, is that information complete and can you rely on it being up-to-date and accurate?
- Compliance – Does the software comply with any necessary law and regulations stipulated by your principal or network?
- Information Security – How is your data, including that of your clients, stored? Is access to your account password protected and is the data itself encrypted and secure to the highest possible standard?
- Data protection – What is your data and that of your clients used for? Will it be shared with anyone else and, if so, for what purpose? How long is data stored for and is it retrievable if you need to obtain records in the future?
- Continuance of service – In plain English, how likely is it that the system will go down? Has it gone down before, and if so, how often? This will give you an indication of likely downtime in the future.
- Risk management – What procedures are in place if things go wrong? How long can you expect to wait if you cannot access the software?
- Cyber security – How secure is the technology against malicious intent by hackers or those who could benefit from accessing your data? Often technology providers protect against this by using third-party experts to conduct something called ‘penetration testing’ to establish whether it is possible to obtain data maliciously.
- Legal – Finally, are you protected if a failure of the technology results in financial loss for you? For example, is public liability insurance in place?
Safety in numbers
With so many adviser firms using the same providers to meet their technology requirements, does this mean there is a possibility of concentration risk?
Mr Murphy does not think so: “Some advisers may worry about using the same technology providers as everyone else, but the benefits outweigh the risks.
“After all, most advisers would probably prefer a solution that is widely adopted and attainable in the sector, since there is safety in numbers.”
As Niral Parekh, head of retail wealth and asset management at Capco, acknowledges: “The concentration risk arises mostly when advisers are overly reliant on automated advice from an engine without applying a fit test, and getting their paraplanners and independent file checkers to continuously monitor the outcome.
“Generally, the client money and assets are well segregated which is important in an event of a disaster. For firms, ensuring these procedures are robust is of paramount importance during due diligence and on an ongoing basis.”
Terry Huddart, head of proposition at the lang cat, observes: “In terms of how to select providers and manage the back-end digital ecosystem, I am seeing a growing desire for using independent components.
“The natural centre for everything is the back office, with planning and fund research software plugged into it, and platforms and other providers used for products (investments and wrappers), custody and implementing portfolio management.”
He says: “Advisers are increasingly looking for the platform to do the basics well, such as custody, products and portfolio management, and then plug independent software in (with as much connection as possible to the back office) for everything else.”
eleanor.duncan@ft.com
