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:
We will consider each of the above in turn.
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:
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|
|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.
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:
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:
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:
|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.
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:
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: