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To CIP or not to CIP, that is the question

What’s the best way to provide clients with suitable investment portfolios? This is a question that polarises the industry: some advisers are adamant that they should manage the investment process themselves, while others choose to outsource, either using model portfolios or working with a third-party specialist discretionary firm.

A recent Lang Cat report tackled this topic head-on and delivered some interesting findings. A key part of the report was a survey of 110 financial planners who run a centralised investment proposition (CIP), examining how they currently handle the investment process.

The survey results highlighted a number of problem areas for advisers, and four in particular stood out to me:

  1. Obtaining client authorisations: Four out of five (82%) firms say getting client authorisations is a major issue. Delayed responses result in having to run a range of models, creating the potential for client outcomes to be impacted negatively. Secure messaging (rather than traditional mail) can improve the process but there’s still no guarantee clients will respond.
  2. Asking for authorisations: Even if they do respond, asking clients – who are likely to have little or no expertise in investment – to approve changes to portfolios seems rather at odds with why they are using a financial adviser in the first place.
  3. Mismatched tools: Another problem area is the use of tools to help decide the right investment outcome for clients. Unless these tools are designed to work with specific investment portfolios, client outcomes can be severely compromised, particularly when it comes to risk profiling.
  4. Back-office systems: Some back-office technology can also present issues. A tech provider that allows advisers to drive efficiencies via potentially flawed practices (such as enabling advisory portfolios to be rebalanced to suit the adviser’s proposition even if not necessarily right for the client, or shoehorning clients into a limited range of portfolio options) can’t be good news for clients and may increase risks for the firm.

For me, a key conclusion of the report is that, unless they have the scope and scale to provide in-house investment solutions, advisers should focus on financial planning and partner with a suitable investment specialist to provide their CIP.

Why is this not happening? Alongside the issue of cost versus fees, many advisers want to “remain in control” of the investment process and believe the best way to do this is to handle the investment process themselves, rather than involve a specialist.

Of course, an adviser should be in control… Anyone charging for the provision of professional financial advice must be in control of what is happening to their clients’ investments. However, there is a big difference between being in control and doing all the specialist investment work yourself.

Trying to run investment portfolios under an advisory model is fraught with problems: aside from the time drag that prevents financial planners from seeing more clients, maintaining and rebalancing models is not straightforward, as highlighted in the report.

Specialist is best

Perhaps the best way forward is if each specialism focuses on their strengths, rather than trying to provide an end-to-end, one-size-fits-all solution. After all, a jack of all trades is so often the master of none.

Back-office providers should focus on being the best back-office they can be, advisers the best financial planners, platforms the best at custody and execution and discretionary investment managers the best at developing and running portfolios that meet specific client needs.

At the heart of all this should sit the adviser/financial planner – not the back-office provider (as the Lang Cat report suggests), platform or investment provider.

Advisers are the ones who know their clients best and who have the most to lose if things go wrong.

Read more articles like this on our insights page

About the author

Dave Chessell

Dave was one of the pioneers in the development of the investment platform market at Skandia UK. Prior to joining PortfolioMetrix, he was Chief Commercial Officer at back office software producer, Intelliflo - experience that gives him a unique insight into the needs of the independent adviser community and its customers.

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