In his previous article on Centralised Investment Propositions (CIP), Karl Dines wrote that a CIP is great 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. In this follow-up, he explores why PROD is so flexible and can futureproof your proposition…
In last month's column I introduced our superhero, PROD. Mild mannered if you look at it as a dull exercise that you have to do "because the regulator says so". However, it can transform into an absolute hero if you use it to run your CIP. It is the engine and drives it forward.
In this article, I want to explain why PROD is so flexible, and why it can futureproof your CIP. The PROD theory revolves around identifying Relevant Financial Instruments and ensuring they are used with the appropriate client and/or segment of clients, like below:
Now, let's talk about the new kid on the block, Centralised RETIREMENT Propositions, or CRPs. CIPs were introduced by the regulator in FG12/16, and CRPs have spun off from this to describe those in a post-retirement situation; and it's fair to say the industry's marketing teams have already been all over them from the moment they hit the scene.
And, in actual fact, it's a good thing because CRPs come to prominence when you are in an entirely different world; taking a finite capital value and generating an income which has to last the rest of a client's life.
While that's fairly simplistic I know as there are a lot of variances - semi-retired, income not required, IHT considerations and so on and so forth - I believe my definition comes fairly close to hitting the nail on the head.
There are various names, post retirement, decumulation etc. But, call it what you want, we now have some cool-looking strategies emerging from providers that specifically look at this area, taking into consideration things like sequencing risk, forecasting a sustainable income, tax considerations when accessing investments, and creating specific strategic asset allocations to meet those needs.
Brilliant - all good stuff. Now, where do you put it? Do you run it alongside your CIP? So you have two processes, two documents, two admin points? Nope. It becomes part of your CIP. Remember, 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.
So, let's take each point in turn:
- Make sure you look at all the investment solutions out there.
If there is a particular strategy, investment solution, or fund or collection of funds it's a Relevant Financial Instrument (RFI). A CRP strategy is an RFI. So, add it to your CIP and make a call on whether you will include or exclude this RFI, then add some words around your rationale for your decision. This means you don't box yourself in to one approach from one provider - you can have as many as you need in that new RFI.
- After fully understanding your client's goals, create the best solution.
You've segmented your client bank and you've probably come to the conclusion that there are two great big segments staring you in the face. Pre- and post-retirement or accumulation and decumulation. Whatever you want to call them, it's pretty easy to see that certain RFIs will suit your decumulation segment, noticeably the one with all the particular strategies, investment solutions or funds or collection of funds, the CRPs.
And that's it, that's why having PROD as the driver of your CIP works so well. Anything that comes over the horizon can easily be assessed, accepted or rejected (with rationale) and then applied directly to the clients that would benefit from it. Brilliant! PROD is a true superhero.
So, getting back to the title of this piece, to CRP or not to CRP. They certainly have a place within the advice process and so far we've seen some compelling strategies emerging and I suspect we will see more.
It's your choice on how you assess them but, when you do, make sure you have a CIP that is thoroughly thought out and structured in such a way that it becomes easy for you to document their inclusion or exclusion.
Karl Dines is head of business consultancy at The SimplyBiz Group
Beyond the FCA's seven considerations
FCA seeks 180-day notice period for redemptions
Consults to address 'structural mismatch'
Likely to join House of Lords later this year
'Fast-changing environments can be dangerous'
'Substantial lessening' of competition
252 firms pulled out
Go alone for follow the crowd?
Once-in-a-lifetime out, necessities in