Nick Eatock: Rebuilding centralised investment propositions

In the advised market, centralised investment propositions (CIPs) are the way business is done. According to research by the lang cat, the majority (82%) of firms operate one and, given that they cover all aspects of the financial planning processing, bringing together different systems, providers and tools, they are often a key determinant of both the efficiency of the advice business and the quality of outcome clients receive.

But, with increasing regulatory demands following MiFID II and PROD, how well are today's CIPs delivering on their promise of consistent of advice, a more efficient business operating model and, most importantly, superior client outcomes? We asked the lang cat to carry out some research among advisers on their views on CIPs, which forms the basis of the paper Better. Stronger. Faster: how do we rebuild centralised investment propositions from here?

The good news is that the majority of firms are happy with the outcomes their CIPs generate from an investment point of view. The bad news is that both the operational side and overall client experience are creating major headaches for advisers.

Pain point 1: Obtaining client authorisations

An overwhelming 82% of firms surveyed described obtaining client authorisations as a major issue with running their CIP, with 30% stating they spent ‘some' and a further 29% at least ‘a lot' of time doing this.

The regulatory requirement to obtain client approval every time the portfolio needs to be changed and/or rebalanced is be especially problematic for firms running bulk portfolios because, as one respondent explained: "Delayed responses mean that we are running a range of models. [It] also potentially impacts upon client outcomes."

Some firms solve this issue by taking on their own discretionary permissions, removing the need for client authorisations every time the portfolio changes. For others, technology is helping carry the load, with one adviser commenting: "[Obtaining client authorisations] has been significantly better since adapting a secure message system to communicate with clients, reducing the need to post letters and the time lag of waiting for confirmation."

Pain point 2: MiFID II disclosure

The MiFID requirement to show both the pre- and post-trade position, as well as more detailed annual statements of costs, has created a serious issue for 83% of the advisers surveyed, massively increasing the time many spend running their CIP.

Two fifths (40%) spend ‘some' time on MiFID II disclosure and a further 42% spend at least ‘a lot' of time. It is clear from both the data and the comments provided that advice professionals are desperate for the process to be easier to manage and more useful to clients: "Information provided varies between platforms rather than a standardised industry approach."

What's the solution?

While in theory a CIP brings together a number of different systems, providers and tools, but rather than creating a single fully integrated solution, in practice each component often remains separate.

To improve efficiency, better integration between each aspect of a CIP and the back-office system is crucial, which CIPs have long promised but only intermittently delivered. Integrating each element of the CIP, including research and planning tools, investment management and platform, with each other and the back-office system is a far more effective way of delivering the proposition than the siloed solution most firms currently use.

The need for better integration is supported by the research, which found that three quarters (74%) of advice professionals plan to seek deeper integration with their back-office system, platforms and research tools.

We believe better integration and greater use of technology to automate the processes around client authorisations and MiFID II disclosure will remove many of the operational issues advisers currently experience with their CIP. This will improve efficiency, reduce risk and create a better experience, at a lower cost, for advisers and clients alike.

If that isn't an argument for rebuilding CIPs to be better, stronger and faster, then we don't know what is.

Nick Eatock is CEO of Intelliflo

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