CIP review
Many firms have spent time refreshing their CIP at the start of the Consumer Duty regime. Rightly, advice firms focused on process to ensure good outcomes - engagement with clients, assessment of risk and product selection.
Some firms will be keen to scale their businesses, and a well written CIP is a great foundation for doing this. It allows incoming advisers to understand how a firm conducts advice. For those looking to acquire firms, the onboarding and due diligence of a prospective firm could run smoother with an ability to assess compatibility of both firms.
A standardised business process doesn’t mean a homogenised advice service. One of the real benefits of the Consumer Duty was it prompted firms to revisit what their client bank looked like through a segmentation exercise. This clarity of client objectives can form part of the remit for setting products, investments and service selection.
Investment philosophy
Despite very good process reviews, we have seen very few cases where firms revisited their investment philosophy. Investment offerings could be different for client segments, however, the investment philosophy could be that thread that joins each investment proposition together across the whole client bank.
We think this is quite important, as it could offer a clear approach to selecting investments with an asset manager or discretionary service. The investment market in the UK is vast, with conflicting ideas and principals. Without clarity it can be difficult and time-consuming to review and select investments. Having a clear investment philosophy can narrow the field and support a recommendation.
Evidence of investment selection is something we have provided feedback to investment committees on. The challenge we see is that firms are selecting investments primarily by quartile performance rankings. Firms get a false sense of security when markets are buoyant, but when markets turn, it can cause uncertainty in the selection process as investments underperform to different degrees. In our view, firms need to look beyond performance and understand why the result is good or poor. It is imperative they have some idea what is going to protect portfolios when the market turns. This should be a consideration when constructing an internal proposition or external investment service. As a distributor, firms need to understand whether a proposition periodically is delivering value to the client.
Firms can use their investment philosophy to generate real identity, some threesixty firms have harnessed this well. An investment philosophy can be a real differentiator and capture the imagination of your clients understanding of your approach and develop their investment education. Crucially, if clients are engaged with your proposition, they could be more resilient to changing markets when things are not going to plan.
Retirement planning
The regulator is taking an approach that firms should re-assess their centralised investment proposition for client’s retirement needs. We feel a firm’s investment philosophy can help cement an approach in retirement. Many firms have decided to retain their existing investment proposition in favour of managing distributions. Clear investment philosophy could support this approach, but it could also highlight any limitations in a strategy too. This could prompt the introduction of other investment products, services or even protection to mitigate risk in clients’ retirement objectives.
Additional services
The centralised review service and investment committee attendance might cover the topics discussed above. As an independent, we are not aligned to a particular proposition. We can have honest and transparent discussion with a firm to listen to what they would like to achieve and we can assess the trade-offs to potential solutions.
Here are some common areas we engage on:
- Does the process make sense to an outsider
- Is the CIP/CRP well documented
- Are there areas that are not compliant
- Are we making the right investment decisions and have we documented them correctly
- Do you have any suggestions on improving the process
If any of these points resonate with your firm, clients of threesixty can contact our research team for an initial appointment.
