Centralised Investment Propositions (CIPs) are so omnipresent in the advice world, they often determine the efficiency of your advice business and the quality of outcome your clients receive. Modern technology has the potential to create a more cost-effective business model while at the same time improving service and experience for clients. But how close is this win-win scenario to becoming a reality?
To answer that question, we asked the lang cat to carry out some research among advisers on our behalf, which forms the basis of the paper, Better. Stronger. Faster: how do we rebuild centralised investment propositions from here?
A pain in the CIP
While the majority of firms are happy with the outcomes their CIPs generate from an investment point of view, there are some real pain points on the operational side and when it comes to overall client experience.
Obtaining client authorisations
The regulatory requirement to obtain client approval every time the portfolio needs to be changed and/or rebalanced creates an inevitable overhead. An overwhelming 82% of firms questioned described obtaining client authorisations as a major issue with running their CIP.
This can be especially problematic for firms running bulk portfolios. As one respondent put it:
Delayed responses mean that we are running a range of models. [It] also potentially impacts upon client outcomes.
When asked how much time they spend on obtaining client authorisations, just over 30% replied ‘some’ with a further 29% stating at least 'a lot'.
Firms running advisory models are required to ensure any trades or rebalance instructions are authorised by the client before the transaction takes place. Failure to do so could mean that the firm is acting outside of its permissions. The more clients invested in model portfolios the more instructions need to be collated. And then there are all the different versions that arise from clients returning instructions at different times (or not at all) which have to be maintained. As time passes and the business grows, so does the scale of the challenge. least ‘a lot’.
The solution for some is to take on their own discretionary permissions, removing the need for client authorisations every time the portfolio changes. Other are looking to technology to carry the load with secure messaging, platform hosted solutions and client portals. The experience of one adviser is encouraging:
[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.
MiFID II disclosure
Cost and charges disclosure is a serious issue for 83% of our advice professionals. The requirement to show both the pre- and post-trade position, as well as more detailed annual statements of costs, massively increased the time many advice firms spend running their CIP.
You can see from the chart that it’s even more of a drag on resources than obtaining client authorisations, with 40% spending ‘some’ time on MiFID II disclosure and a further 42% at least ‘a lot’ of time. This isn’t helped by the belief that the information isn’t actually of value, with a typical comment being:
FCA mandate paperwork that in reality most clients will not read.
What comes through loud and clear from both the data and the comments around MiFID II disclosure is that advice professionals are crying out for platforms and technology providers to make things easier to manage and provide information that will be more useful to clients:
Information provided varies between platforms rather than a standardised industry approach.
Client value for money
Alongside these pain points lies a further CIP challenge, keeping costs low to support the client’s perception of value for money, while still remaining profitable. This is especially difficult when several elements of the CIP are outsourced.
CIPs cover all aspects of the financial planning process and often bring together a broad range of different systems, providers and tools with outsourcing common across risk profiling, asset and fund allocation. Client contact points, particularly client reporting, tend to be kept in-house.
All of this outsourcing carries a cost, at least some of which is passed on to clients. Advisers, naturally, want to provide the highest level of service, the best experience and outcomes, which means using what they consider to be the best systems.
Is there a better way?
We believe there is potential for disruption in the CIP market, more so in terms of investment and platform offerings than advice, but still lowering costs for clients over time.
How these potentially lower costs permeate into a client’s value judgement is down to each individual. Service experience and investment outcome are difficult to measure being often aligned to expectations and circumstances.
Better integration between each aspect of a CIP and the back-office system is, for many advisers, the only path to the efficiency and scalability that CIPs have always promised but only intermittently delivered. We believe our Integrated Model Portfolio Service (iMPS) can help bridge that gap, and deliver a simply and seamless investment portfolio management experience for your clients, so that you can demonstrate the value you add to their financial journey.