This series of blogs so far has covered; ‘What advisers need to know about CIPs‘ and ‘The highs and (potential lows) of having a CIP – this last instalment will look at how you could create a Centralised Investment Proposition (CIP).

With a CIP, there is no ‘right’ way or method to adopt. You generally need to achieve the following aims:

  1. Outline the service proposition you intend to offer and how clients who require services are segmented
  2. Identify the features and options you want your CIP to offer clients. This should be client-centric and focused on how positive outcomes can be delivered through your proposition.
  3. Identify when the CIP will not be appropriate and what type of process there will be to provide an appropriate solution for these clients.

We will consider each of the above in turn.

Outline the service proposition and segment clients

This was introduced in the first part [link] and does not just help with CIP creation or fulfilling PROD obligations but gives the business more clarity and focus on who their clients are and what they need. You might find the service proposition develops from the process of segmentation and this would be a benefit to both the adviser firms and the end customer.

When thinking about service proposition, the following aspects will influence the CIP process:

  • Review periods – (will there be an annual review or bi-annual review – this could impact on fund switch/rebalancing options)
  • Client communication – In place of more frequent meetings, what level of portfolio update will be provided (will the adviser rely on portfolio managers to update clients on portfolios or returns or will the adviser firm look to provide this for an in-house arrangement) – This will also be impacted by ‘10% drop’ MIFID II rule regardless of approach
  • Cost – inevitably cost will drive the level of service for both parties. The level of service offered/required should impact on how much of an ongoing relationship there will be. There could be a very light-touch process for some clients and the nature of this will influence what investments would be recommended.

After this exercise, you could have the following features of different levels of service:

‘Low’ need ‘Medium’ need ‘High’ need
Review period Annual Bi-annual – annual Bi-annual or less
Communication Annual Bi-annual Quarterly update
Rebalancing Annual More frequent if needed

 

Having formally identified the above, this should help with documenting the CIP. For the ‘low’ need client, there is clearly no rationale to justify the approach of, for example, an adviser managed portfolio created in-house and reviewed on a monthly/quarterly basis.

Likewise, you may identify that ‘high’ need clients have other areas of planning (tax, cash flow, IHT etc.) that will be the focus, and so something that relieves the time spent on the investment management side is a preferable solution.

Identify features and options of the CIP that will be offered

Having considered what level of ongoing service will be offered to what type of client, you can use this to help assist in determining what kind of investment you will consider.

Taking the example of a ‘high’ need client segment, we have determined that this type of client would benefit from an outsourced option, to give the adviser the time to deliver the level of financial planning review needed. As a result, a Discretionary Fund Manager (DFM) option would be the starting point here. This may be on a bespoke basis or a model basis depending on both the level of investable assets to deal with and/or considerations of cost.

You can then consider what criteria is important in this consideration, for example:

  • The importance of cost in a choice
  • Where the DFM is based for reporting and meeting with the adviser/client
  • The range of Model Portfolio Service (MPS) options (risk levels/ethical options/active and passive options)
  • How the risk of an MPS is calculated (does it align with the chosen risk profiling tool?)
  • Experience and financial standing of the DFM.
  • Performance reporting and accountability
  • Range of services offered and platform availability.

There is a wide range of potential criteria that could be used here. You could use an independent research tool (Defaqto/Synaptics) to filter based on the selected criteria. You may then look to meet with potential DFMs or request due diligence packs to review.

Your segmentation might identify clients that would benefit from use of a simplified multi-asset investment available on or off platform. You could use tools (Defaqto/Synaptics/FE) to filter based on the criteria you deem important. This could be such things as:

  • Maximum cost
  • Track record and past performance relative to sector/benchmark
  • Independent ratings
  • Risk levels and whether mapping to preferred Risk profiling tool is possible
  • Insured option or Unit Trust option.
  • Fund size
  • Platform availability if appropriate

You could filter possible investments based on criteria such as the above and analyse the shortlisted options. This should hopefully give you an idea of what investment options suit what you are trying to offer.

You may find from this stage you have something that appears like this:

Segment Investment option
Relatively low value of assets (or just starting) and ‘low’ review need Multi-Asset fund / portfolio of funds

·       No adviser rebalance requirement

·       Low cost

·       Able to accept low values

·       Diversified and able to align with agreed risk

 

This can be continued to cover all the segments identified earlier.

When the CIP is not appropriate or dealing with outliers

 Naturally, there will be a number of clients who do not fit into the centralised proposition. The obvious examples of these are IHT planning investment recommendations but it may also be the case the service and needs of a client are considered on a bespoke basis.

Outlining how you deal with these clients can help complete the CIP. It is important to consider here the research methods you will potentially use. For example, the MICAP tool can be used to research tax or IHT planning investments and a combination of independent tools can be used to research potential options which might cover the following:

  • Offshore investments
  • Specialist ethical requirements (sharia compliant etc.)
  • Family investment planning (JISAs)
  • Trust planning (Charitable trusts)

Conclusion

The CIP should only ever be created and used as a means to support the investment approaches a number of potential clients could be offered, assuming they are aligned with the segment and service offering. It helps bring consistency to the investment advice side for the firm and can justify why one approach suits one client, compared to an alternative approach for a different client.

The main points in how to create a CIP can be summarised as:

  • Clearly identify segments of clients and what each segment should receive (in terms of service and investment approach)
  • Detail the process to selecting the investments that are likely to be offered to a prospective client in each segment.
  • Outline the process in which outliers and those where the CIP is inappropriate are dealt with.
How to create a CIP

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