A centralised investment proposition (CIP) may be an everyday concept in financial circles these days but although its context of standardised investment approach is clear, there is a wide range of investment solutions that falls under its umbrella.
The FCA has made it very clear that a standardised investment approach should not be viewed as a one-size fits all solution. This means the construction of a CIP is a complicated business. How, then, should advisers go about comparing and contrasting all the options available in order to select the one which is right for them?
We’ve outlined three key areas to consider:
First of all, the CIP must be suitable for your clients, not just your firm. Advisers have usually decided to develop a CIP because they want to create additional value for their clients and because they see it as sound basis on which to run a financially viable financial planning business. The CIP does provide clients with a clearly visible and repeatable process but it’s important that their requirements are not just ’shoe-horned’ into the new CIP. The temptation can be to try and retrofit an existing system into the new model.
The regulators expect firms to ensure that individual recommendations made through a CIP are suitable for each specific client. So structure is important but it’s also vital that the needs and objectives of a firm’s target clients are fully considered when designing or adopting the CIP. It’s also worth investigating client segmentation as this enables the most appropriate investment solution to be delivered to each client. There must also be a robust control system in place to mitigate any risks which might arise from the CIP.
Secondly, the CIP needs to be under constant assessment. It’s vital to consider how the processes and structures of the investment proposition will be monitored and reported on and how advisers will be trained on those processes and structures. In the past, customer portfolios have become out of kilter with the initial intentions, which has proved difficult for advisers to manage. So there needs to be a tight regime of ongoing governance, review and rebalancing in place.
Thirdly, the CIP needs to be adaptable to client needs. Circumstances will inevitably change, as will the client’s risk tolerance, so the CIP can’t be so rigid that it doesn’t allow change. The client’s investment time frame also has to be factored in. Such client-focused thinking should be at the heart of every aspect of your CIP; from initial research, to modification, to implementation and compliance.
What must be avoided at all costs is producing a process which is a ‘catch all bucket’ for clients. This just becomes a real compliance headache for firms. A well-designed CIP should allow you and your clients to grow so that it includes flexibility as well as individuality in clients’ plans.
All the above just goes to underline that there is no right answer. There are many different ways to achieve similar outcomes. The key point is that the CIP has to be right for both your firm and your clients.
To find out more about how the best firms structure their CIP, download our complete guide to developing and managing an investment proposition.
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