Are Centralised Investment Propositions appropriate for today’s regulatory regime?

Finding ways to service clients more efficiently has led to a number of potential solutions, not least of which is a Centralised Investment Proposition. (CIP). 

Where this has manifested in model portfolios or in-house funds, this has been a recent focus of the FCA from two perspectives:  1) Client suitability; and 2) where a wealth manager has launched their own funds, conflict of interest.

On the second element, the FCA published the results of their thematic review in November 2014.  This report stated that wealth managers who had launched their own funds to deliver certain investment risk-return profiles had, on the most part, done so in the right way, as a delivery mechanism and not as a way of cross-selling (and generating additional revenues for) product.

On the first point – Suitability, the jury is still out.

At a recent conference, Rory Percival of the FCA said:  “One of the areas of concern is that there is the potential for increased standardisation to result in a lack of personalisation.  There are a number of instances where we would have seen this potentially happening, so one area would be when we are looking at the files and seeing standard objectives across different clients and those objectives are solution-based rather than client-based.”

Whether standardisation is inherently bad is a whole subject in itself, and we have debated with many of our clients the best ways to deliver cost-efficient, quality investment.  As discretionary managers considering CIPs, what needs to be clear is that the starting point is the client and not the solution.  Managers must ensure that their process incorporates consideration of a client’s individual preferences, personalised needs and objectives (which should be properly documented) – whilst the outcome might be a CIP solution, the entry into it using tick boxes, standardised letters and inflexible review processes, will not cut it. 

In the words of Rory Percival, firms that employ CIPs and/or any other form of model portfolio “need to have that balance to ensure that personalisation is involved and by having that personalisation you will also have the best defence against us”.

The Jury may be still out, but the guidance from the Judge has been made clear.


Gilly Green

Gilly heads Knadel's Wealth Management practice. Gilly has over 25 years experience in the Wealth Management industry and has both hands-on, practitioner experience working within Wealth Management firms as well as a wide range of change expertise and knowledge, gained during her time as a management consultant.

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