CIPs - the good, the bad and the ugly
We know that Centralised Investment Propositions (CIPs) are the way business is done in the advised market, with 82% of firms operating one according to research by the lang cat.
In fact, CIPs have become so integral that they can be a key determinant of both an advice firm’s efficiency and the quality of outcomes received by the clients of that firm.
So just how happy are financial advisers with the outcomes achieved by their CIP, and the process of building the CIP itself?:
These are just some of the questions we asked 110 advisers as part of a recent research paper we commissioned from the lang cat, Better. Stronger. Faster: how do we rebuild centralised investment propositions from here?
The good news is that most of the firms we spoke to appear to be happy with the outcomes their CIPs are generating from an investment point of view. However, both the operational side and overall client experience are in need of some TLC.
But a CIP is much more than just a set of funds. Before we dig into the adviser data, it’s worth taking a moment to note the different systems, providers and tools that make up a CIP
There are planning tools for engaging with clients and developing the financial plan, such as cashflow modelling, risk profiling and asset allocation tools
Research tools and provider information are also needed to identify the investment solution
Ongoing communication with clients through an online client portal or via paper documents
The back-office system to hold all the client data
Lifting the lid on CIPs
Three quarters (77%) of the advisers we spoke to run their CIP on an advisory basis, with the remainder operating either completely, or partly, on a discretionary basis.
We also found that outsourcing is a theme that runs throughout almost all elements of a CIP, from research and design to implementation. More than half (55%) of firms use a third party for risk profiling and 53% outsource asset allocation. The exceptions here are client contact points, particularly client reporting, which tend to be managed in-house (14% outsourced). This is understandable as financial advisers will want to be able to control and deliver CIP reporting as part of a wider client offering.
When it comes to the investment solutions within CIPs, 93% said they use open-ended funds, with cash second at 56% and non-fund options lagging far behind.
Here’s where things can get tricky. Researching and creating portfolios demands considerable time from advisers.
However, while most see this as an important good use of their time, with one respondent describing it as “an essential element for which there is no shortcut,” many of the advisers we spoke to expressed frustrations at the difficulties faced in obtaining information. Several highlighted a need along the lines of “an easy-access directory of all DFMs in the market”.
More automation and integration
Once portfolios have been researched and constructed, the next necessary step is to build them on the adviser’s platform(s) of choice. Again, most respondents were broadly happy with how long this part of the process takes. But a number of comments were also made about the fiddly nature of the process.
So how can we make building a CIP on platform easier? Many of our respondents say that more automation and integration between platforms, research tools and back office systems would help.
The pain of portfolio maintenance
Advisers are markedly less satisfied with many of the processes involved in portfolio maintenance. Obtaining client authorisations (for any advisory changes to the portfolio) and cost and charges disclosure were both noted as particularly painful experiences.
Two distinct solutions to some of these problems are emerging. Some advice firms are potentially looking to take on their own discretionary permissions, and therefore removing the need for client authorisations each time the portfolio changes. Alternatively, others expect technology to take on the lion’s share using secure messaging, platform hosted solutions and client portals.
Why insource your investment management?
If you didn’t believe us before when we said a CIP was more than just a set of funds, the time and effort that advisers are clearly putting into both CIP construction and maintenance is yet further proof.
And that’s because CIPs aren’t just a part of what advice firms offer: they are what advice firms offer. CIPs are the fundamental proposition an advice firm provides its long-term savings and investment clients. In this light, the operational issues experienced by advice firms start to look more serious – they’ll almost certainly be getting incrementally worse every time a firm takes on a new client. By insourcing your investment portfolio management with our Integrated Model Portfolio Service (iMPS), you can take back control of your clients’ journey and reduce any friction in the advice process.
So while it’s positive to see that most firms are comfortable with the end results produced by their CIP, it may also be time for many to reassess how their CIP is being deployed and question if parts of the experience can be improved for all concerned.