When implemented well, a centralised investment proposition (CIP) can deliver consistency of advice, a more efficient business operating model and, most importantly, superior client outcomes.
To better understand how advisers currently engage with their CIPs and what needs to change for the better, we asked the lang cat to carry out some research among advisers on our behalf. That research took place in May 2020 with 110 financial advice professionals, all of whom use a CIP and forms the basis of the paper, Better. Stronger. Faster: how do we rebuild centralised investment propositions from here?
Separation, not integration
A CIP is not a single entity; it’s much more than just a set of funds. It brings together different systems, providers and tools across the whole financial planning process. But to what extent does it really bring those systems, providers and tools together?
Our experience in the market tells us that the relationships are much more tenuous – orbiting satellites rather than effective integration.
And that view is supported by our research, with 74% of advice professionals planning to seek deeper integration with their back-office system, platforms and research tools.
Viva la disruption
We can break the above diagram down into three main elements: advice, investment solution and platform, to see how ripe each is for disruption and what that might look like.
While there is no sign of end-customer price sensitivity, there are an increasing number of low-cost advice services. And then there’s the regulator’s increasing interest in the suitability of advice fees, particularly ongoing charging.
Over time this pressure is likely to lead to an increase in firms offering a fixed or capped fee. The amounts charged will remain the same; the structure will evolve.
For client fees to fall, so must the cost of delivering advice. One way to achieve that is through better integration with the CIP, with each being as efficient as possible. A starting point for this is mapping the advice process, testing each element. This can also be useful for the move to fixed fees.
2. Investment solution
Models are, and will likely continue to be, the structure of choice. Beyond that, however, there is great potential in technology enabling new propositions which:
- Micro-segment end clients to segments of one, with unique liability-driven portfolios which match cashflow models.
- Learn from the DC world and create structures for groups of clients where managers can be appointed and removed without heartache and paperwork.
- Enable clients to invest in underlying assets at scale without the complication or expense of funds.
These all exist or will do shortly; the challenge is in their being widely adopted.
The platform market is starting to fragment with low-cost, stripped back services joining established brands. These focus on core functionality with back-office integration a key feature and a paperless advice process encouraged, if not mandated.
The biggest challenge for these new entrants is making it through due diligence, convincing advisers sufficiently to lure them away from the big platform brands.
Another, more practical, challenge is the extent to which an adviser’s business will be bound up with legacy technology. However good a new offer may be for new business the majority of existing clients will remain in situ.
This is what better looks like
CIPs aren’t part of what an advice firm offers. They are what advice firms offer. It’s easy to think of a CIP as a portfolio, but it’s really the fundamental proposition an advice firm offers its long-term savings and investment clients.
While the majority of firms are comfortable with the outcomes their investment solutions are generating, there is a great deal of room for improvement from an operational perspective and in terms of client experience. With better integration of technology, a lot of CIPs could be run more efficiently and with less business risk along the way.
What needs to change?
For advisers, 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. Only by integrating fully with the back-office system can firms improve the efficiency of their processes and, crucially, start to benefit from implementing a client portal – improvements to which are an ambition for 71% of our respondents.
A client portal can address a good number of operation issues which currently blight firms, enhancing the client experience and making the business more efficient. With widespread adoption of digital services accelerating in the wake of Covid-19, an increasing number of clients are likely to expect to be able to interact with their adviser electronically.