The first part of this series of blogs, looked at the regulatory need to consider a Centralised Investment Proposition (CIP) and the role of Product Intervention and Product Governance (PROD). There does however need to be more benefit for a firm than just ‘box ticking’ and we will consider some of the benefits, along with potential disadvantages, of a CIP.

Consistency

  • Advisers within the firm will have a set process to consider with clients, reducing the likelihood of one adviser using a considerably different approach to another.
  • A consistent process will help with oversight for geographically distributed firms.
  • Annual reporting to clients and reviews can be streamlined.

The FCA have previously highlighted inconsistency between advisers’ recommendations at the same firm as a cause for concern.

Risk

  • A demonstrable process for investment selection can avoid appearing to ‘shoehorn’ clients.
  • A formalised assessment of a particular investment can help if issues arise years later – without a CIP it might be difficult to show how the investment was researched and selected.
  • Similarly, effective due diligence on an investment can show, if future problems arise, the selection was based on good faith and on the publicly available/reported information.

Time

  • Reduction in need to ‘fund pick’ for every client freeing up time for other elements of the advice process.
  • A recommendation to use an investment within the CIP will not need to be researched to the same level for a particular client as it would without a CIP in place.

Processes

  • Streamlining the way in which clients are reported to, which can help set the depth of the overall ongoing proposition.
  • A way in which to review and keep track of the investments used, can be established internally. This would eliminate this requirement from otherwise needing to be part of the general day-to-day tasks.

A CIP can save time for the firm in the long term and for firms with growing numbers of advisers, it offers an excellent way of keeping a consistent approach for the firm to follow. A CIP has some potential disadvantages however to be aware of, the main two being:

  • Advisers attempting to fit clients to segments/investments, potentially being blinkered into thinking a certain client and segment fit better than they do.
  • Using the CIP as a way to avoid any consideration of suitability to the client in particular. If a client falls within a segment and has a particular risk profile, it should not be an automatic conclusion that they use that investment.

While creating a CIP can demonstrate that clients are not being shoehorned, there is also a danger that it can breed this exact issue. A detailed client segmentation exercise followed by a CIP which covers various types of client category along with processes for using a bespoke solution can offer a way to avoid this. In the next part we will look at the steps you might take to create your own CIP.

The highs (and potential lows) of having a CIP