Nearly half (47 per cent) of advisers are worried that a platform could fail over the next three years amid concerns about oversupply and financial strength, a study from Scottish Widows has found.

The firm’s latest Investor Confidence Barometer revealed that 41 per cent of advisers would exclude a platform from their shortlist if it had a ‘B minus’ financial strength rating or lower.

When asked about the top issues that came up in due diligence checks, which are a requirement under the Consumer Duty, 52 per cent highlighted service, followed by price (47 per cent) and value for money (46 per cent).

Financial strength was cited by 35 per cent of advisers, ahead of other factors such as digital functionality (14 per cent).

Scottish Widows found that advised clients were more informed about the financial strength of the providers they use, with 62 per cent knowing the rating of their platform/provider, compared to 35 per cent of non-advised consumers.

Advisers had differing opinions about whether the platform market was oversupplied, with 40 per cent saying it was and 39 per cent disagreeing.

The report noted that, with this polarised view, it was unsurprising that 51 per cent of advisers had strategies in place to protect client money beyond the £85,000 Financial Services Compensation Scheme (FSCS) limit.

Furthermore, when it came it protecting their assets, 74 per cent of advised clients reported that they have strategies in place to protect their money above the FSCS limit, compared to 60 per cent of non-advised consumers.

While the research found a “significant proportion” of advisers feared the financial collapse of a platform over the next three years, 52 per cent disagreed that ‘consolidation and mergers & acquisitions (M&A) in the advice industry is a good thing for consumers’.

When asked about private equity ownership, 37 per cent were worried about private equity market share, 20 per cent were not concerned, and 43 per cent were uncertain.

Commenting on the findings, Scottish Widows Platform head of platform proposition, Ross Easton, said: “It should come as no surprise that the financial strength of platforms is a top priority for advisers, as it’s the pillar on which their business is based, and trust is formed with clients.

“This is also in line with the expanded mandate for assessing foreseeable harm from the FCA to ensure client money is protected. Advised consumers are increasingly engaging with their providers and demanding the strongest assurances that their money is safe.

“Financial strength also impacts a platform’s ability to invest, with the advice market now expecting continuous innovation to keep up with intense competition.”

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