Centralised investment propositions have become an integral part of adviser businesses over recent years. But, in this piece, Karl Dines has a look at some misnomers about them and discusses how PROD should be "in the engine room" of your CIP...
Centralised Investment Propositions, they're nothing new. FG12/16 - issued by the then-FSA in July 2012 - made this clear, and that's seven and a half years ago. Since then we've had the Retail Distribution Review, MiFID II and so much more in between.
To give it it's full title, FG12/16 Assessing suitability: Replacement Business and Centralised Investment Proposition contains two themes in one. The paper explores the effect of switches and the construction of a Centralised Investment Proposition (CIP).
Great emphasis was placed on ensuring that any recommendation was in the best interest of the client, both in the advice stage and in checking suitability when constructing a portfolio. It is clear the FSA wished to ensure that the investments match the client's attitude to risk and that still is the case. It's an in-depth guide and provides clear pointers regarding how the regulator would like to see investment solutions constructed.
Let's get back to basics. Fundamentally a CIP is a way to make sure you look at all the investment solutions out there and, after fully understanding your client's goals, create the best solution. The trick is to assemble all the moving parts into a logical methodology that works, is flexible and future proof.
In addition, if you create a CIP it needs to be useful and positively contribute to your business. If you navigate to your CIP document in your hard drive and it was last modified in 2017, then what's the point?
So what are the moving parts?
On numerous occasions I talk to firms about constructing CIPs and two misnomers crop up time and time again:
Misnomer 1: "I use [insert DFM / DIM / platform solution here] so I have a CIP, thank you very much."
No you don't. You've identified one particular solution (or financial instrument) that works. There is more out there.
Misnomer 2: "Yes, my CIP is [insert preferred platform and products] and we use [insert preferred investment solution]".
That is not a CIP, that is the output of a CIP. It should be the methodology you engage in order to do the fundamentals, namely make sure you look at all the investment solutions out there and, after fully understanding your client's goals, create the best solution.
So back to the moving parts, there's three main ones.
- Categorising your clients
- Client and fund risk management
- Selecting the appropriate investment solution, product and/or platform
Sounds familiar? It should do because in essence this is what PROD is about. Let's use the Toolbox Analogy.
- Make sense of your clients, based on their needs / goals / circumstances.
- Make sense of all the financial tools at your disposal and decide which ones you want in your toolbox.
- When you engage with a client, find out what the job is and pick the right tools to do it as effectively as possible.
That's it, everything else is secondary and supports these three parts.
So what is the point?
The point is PROD is dull if you just look at it as a thing you have to do, you put it on file and get back to work. PROD, in fact, should be the engine room if your CIP and driving it forward. Then it becomes a superhero: a really useful thing that works, is flexible and future proofs your CIP.
Here's an example of a methodology and the one we employ at The SimplyBiz Group, PROD being central to its execution.
So you've designed your CIP, and at the heart of it is PROD so you have segmented your client bank, identified all the financial instruments you are likely to use, including products and platforms and explained why they are of use to you.
A new investment vehicle becomes available, it could be anything, risk rated ESG funds, peer to peer lending, or even the newly marketing CRPs. What do you do and how do they fit into your CIP?
- It is a financial instrument, so add them to your list.
- Analyse the financial instrument, is it viable? Can you use it? Will it be of benefit to your clients? If you can make it available.
- You've segmented your client bank, so decide which segments this new investment vehicle will be most suited to.
That's it, that's the spirit of PROD working at the heart of your CIP, flexible to move into new areas as they arrive and easy to incorporate new ideas into an existing framework.
Karl Dines is head of business consultancy at The SimplyBiz Group
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'PROD should be in the engine room'
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