How do investment platforms list funds?

Key takeaways

  • Platforms are required to check that the funds they list comply with the law.
  • Some platforms provide you with fund ratings for the funds listed.
  • Some platforms provide you with “a buy list’’ of funds that it has researched.
  • The regulator is considering some due diligence requirements for platforms.

All platforms are required to ensure the funds listed comply with legislation. Most say they go beyond merely checking licences and legal structures.  They ensure the fund taxes investors properly, is well governed, has no key risks (including key personnel risks), is operationally sound, has secure data and a good information technology system.

While a platform must ensure that the funds offered comply with legislation, this does not mean that the platform guarantees the fund’s performance or controls how much risk the fund manager takes.

If you use an adviser or discretionary fund manager, they are responsible for ensuring the funds they choose for you are suitable for your investment needs and match your risk profile. Read more: What is my risk profile?

Some platforms publish fund ratings from ratings agencies to help you to choose funds. The ratings are based on criteria such as performance, the fund manager’s ability to stick to its stated investment philosophy, risks to future performance, stability of the investment team, the fees charged and the value offered to investors.

Others draw up their own “buy lists” to guide your fund selection. These buy lists may contain in-house funds – funds from unit trust company in the same financial services group as the platform.

Future checks may be required

As part of its Retail Distribution Review, the financial services regulator, the Financial Sector Conduct Authority (FSCA), is considering setting requirements obliging platforms to carry out certain checks or due diligences before they list a fund, investment manager or model portfolio on a platform.

In its Retail Distribution Review, the FSCA has suggested that unit trust fund managers should also be obliged to do a due diligence on any investment platform that distributes their funds.

It also proposes that financial advisers be required to conduct a due diligence on any investment manager, model-portfolio provider or collective investment scheme manager they recommend to you.