Our sister company, Apricity, have released a whitepaper entitled just that – Compliance: The Good. The Bad. The Future. It explores the current regulatory landscape – what’s working for you, and what isn’t – and just as important, it gives some insight on what the future of compliance will look like.

Apricity had a busy start to the year, reviewing and synthesising the responses to their engagement survey last year. With just over 100 responses from financial advisers and planners, it’s fair to say that there was plenty of commentary to digest.

To download your copy of this free guide, visit the Apricity site here.

A whitepaper from our sister company, Apricity, exploring the current regulatory landscape.

This series of blogs so far has covered; ‘What advisers need to know about CIPs‘ and ‘The highs and (potential lows) of having a CIP – this last instalment will look at how you could create a Centralised Investment Proposition (CIP).

With a CIP, there is no ‘right’ way or method to adopt. You generally need to achieve the following aims:

  1. Outline the service proposition you intend to offer and how clients who require services are segmented
  2. Identify the features and options you want your CIP to offer clients. This should be client-centric and focused on how positive outcomes can be delivered through your proposition.
  3. Identify when the CIP will not be appropriate and what type of process there will be to provide an appropriate solution for these clients.

We will consider each of the above in turn.

Outline the service proposition and segment clients

This was introduced in the first part [link] and does not just help with CIP creation or fulfilling PROD obligations but gives the business more clarity and focus on who their clients are and what they need. You might find the service proposition develops from the process of segmentation and this would be a benefit to both the adviser firms and the end customer.

When thinking about service proposition, the following aspects will influence the CIP process:

  • Review periods – (will there be an annual review or bi-annual review – this could impact on fund switch/rebalancing options)
  • Client communication – In place of more frequent meetings, what level of portfolio update will be provided (will the adviser rely on portfolio managers to update clients on portfolios or returns or will the adviser firm look to provide this for an in-house arrangement) – This will also be impacted by ‘10% drop’ MIFID II rule regardless of approach
  • Cost – inevitably cost will drive the level of service for both parties. The level of service offered/required should impact on how much of an ongoing relationship there will be. There could be a very light-touch process for some clients and the nature of this will influence what investments would be recommended.

After this exercise, you could have the following features of different levels of service:

‘Low’ need ‘Medium’ need ‘High’ need
Review period Annual Bi-annual – annual Bi-annual or less
Communication Annual Bi-annual Quarterly update
Rebalancing Annual More frequent if needed

 

Having formally identified the above, this should help with documenting the CIP. For the ‘low’ need client, there is clearly no rationale to justify the approach of, for example, an adviser managed portfolio created in-house and reviewed on a monthly/quarterly basis.

Likewise, you may identify that ‘high’ need clients have other areas of planning (tax, cash flow, IHT etc.) that will be the focus, and so something that relieves the time spent on the investment management side is a preferable solution.

Identify features and options of the CIP that will be offered

Having considered what level of ongoing service will be offered to what type of client, you can use this to help assist in determining what kind of investment you will consider.

Taking the example of a ‘high’ need client segment, we have determined that this type of client would benefit from an outsourced option, to give the adviser the time to deliver the level of financial planning review needed. As a result, a Discretionary Fund Manager (DFM) option would be the starting point here. This may be on a bespoke basis or a model basis depending on both the level of investable assets to deal with and/or considerations of cost.

You can then consider what criteria is important in this consideration, for example:

  • The importance of cost in a choice
  • Where the DFM is based for reporting and meeting with the adviser/client
  • The range of Model Portfolio Service (MPS) options (risk levels/ethical options/active and passive options)
  • How the risk of an MPS is calculated (does it align with the chosen risk profiling tool?)
  • Experience and financial standing of the DFM.
  • Performance reporting and accountability
  • Range of services offered and platform availability.

There is a wide range of potential criteria that could be used here. You could use an independent research tool (Defaqto/Synaptics) to filter based on the selected criteria. You may then look to meet with potential DFMs or request due diligence packs to review.

Your segmentation might identify clients that would benefit from use of a simplified multi-asset investment available on or off platform. You could use tools (Defaqto/Synaptics/FE) to filter based on the criteria you deem important. This could be such things as:

  • Maximum cost
  • Track record and past performance relative to sector/benchmark
  • Independent ratings
  • Risk levels and whether mapping to preferred Risk profiling tool is possible
  • Insured option or Unit Trust option.
  • Fund size
  • Platform availability if appropriate

You could filter possible investments based on criteria such as the above and analyse the shortlisted options. This should hopefully give you an idea of what investment options suit what you are trying to offer.

You may find from this stage you have something that appears like this:

Segment Investment option
Relatively low value of assets (or just starting) and ‘low’ review need Multi-Asset fund / portfolio of funds

·       No adviser rebalance requirement

·       Low cost

·       Able to accept low values

·       Diversified and able to align with agreed risk

 

This can be continued to cover all the segments identified earlier.

When the CIP is not appropriate or dealing with outliers

 Naturally, there will be a number of clients who do not fit into the centralised proposition. The obvious examples of these are IHT planning investment recommendations but it may also be the case the service and needs of a client are considered on a bespoke basis.

Outlining how you deal with these clients can help complete the CIP. It is important to consider here the research methods you will potentially use. For example, the MICAP tool can be used to research tax or IHT planning investments and a combination of independent tools can be used to research potential options which might cover the following:

  • Offshore investments
  • Specialist ethical requirements (sharia compliant etc.)
  • Family investment planning (JISAs)
  • Trust planning (Charitable trusts)

Conclusion

The CIP should only ever be created and used as a means to support the investment approaches a number of potential clients could be offered, assuming they are aligned with the segment and service offering. It helps bring consistency to the investment advice side for the firm and can justify why one approach suits one client, compared to an alternative approach for a different client.

The main points in how to create a CIP can be summarised as:

  • Clearly identify segments of clients and what each segment should receive (in terms of service and investment approach)
  • Detail the process to selecting the investments that are likely to be offered to a prospective client in each segment.
  • Outline the process in which outliers and those where the CIP is inappropriate are dealt with.

Our Founder & Director, Cathi, will be speaking at Money Marketing Interactive on 4th April  2019 – in the meantime, they’ve conducted an interview with her which you’ll find below…

What is the most encouraging advice market trend you are seeing at the moment?

Advisers changing their mindset from being advisers, to being business owners who happen to give financial advice. Not only does this mean more professionalism, it means more robust, long-term business. It also means better client outcomes and advisers embracing things like technology, outsourcing and implementing compliance frameworks – not because they have to, but because they can see sound business logic in it. This shift will escalate in coming years and turn financial services into a true profession.

What one word or phrase do you think sums up the state of the financial planning profession today?

Trying. Both in the sense of regulation and market conditions making it a very trying time for advisers, but also that all the advisers I speak to and work with are trying so hard to navigate through all of this, to support their clients, to give them piece of mind and to build sustainable profitable businesses. It feels like there’s a huge amount of effort from all angles at the moment, and I think that bodes really well for the future of finance.

What do we need to do to improve financial literacy in the UK?

It simply needs to start earlier. It was hearing about someone receiving an inheritance, when I was 22, that made me question what they would do with that inheritance, and realise I literally had no idea about the world of finance whatsoever.  Not even what an ISA was. Or how a pension worked (despite being in a GPP).

Realising there was this huge gap in my knowledge of something so fundamental is what drove me to begin a career in finance. But I was already 22 and had made some poor financial decisions in life. It’s been said a million times before, but the fundamentals should really be taught in school – as a minimum.

What is the one key skill all aspiring advisers should learn?

It always has been, and always will be, about people, about building their trust, connecting with them to a level that they feel comfortable talking about their money, something that doesn’t come easily to most people.

Having knowledge is important. But listening skills, empathy, and being able to explain the complex in simple terms will always be the mark of a truly great adviser.

Read the original article here.

Most people associate me with Para-Sols, my original baby, and a paraplanning business that has exceeded every hope I could have ever had for it. Paraplanning was my background, my first love, and building a company that enabled me to do what I truly enjoyed for a living was an absolute dream.

But, as all babies / businesses do, it grew up. It didn’t need me as much. Para-Sols has an incredible team, and a brilliant grad scheme that brings trainees through and takes them on the paraplanning journey. And so, without it needing 100% of my attention, I was able to look at what other issues there were in financial services that I thought I could help do something about; and along came Apricity. Still in its relative infancy compared to Para-Sols, it nonetheless has had its stabilisers removed (sorry for all the metaphors!) and I was once again able to scratch another itch I had.

And so today sees the launch of two more entities; The Art of Finance, designed to bring more people into financial services and show them what an amazing career option it is, and, pulling all of these together is The Verve Group.

Within the group is the existing brands and companies; Para-Sols, Apricity, The Grad Scheme and The Art of Finance, which all support at least one of the two missions of Verve:

To provide financial planners, of all shapes and sizes, with the best support services around and; shout about how brilliant a career in finance is, and provide opportunities for those wanting to get into it.

In addition to these, I have my own personal mission – to run the type of businesses I always wanted to work in. I regularly pledge to my team that working with me, they should never have ‘the Sunday night dread’, and if they do, I’m failing. Our employee total is approaching 35, and so the environment from when there were 5 of us is very different, and sticking to this mission means constantly changing and evolving; but it is one I am completely committed to.

So a lot has changed in the last 10 years (10 years!) but also a lot has stayed the same; a love of paraplanning, a desire to help promote financial services, an enthusiasm for supporting advisers and enabling them to build their businesses further, and a determination to be the best employer I can be.

It’s been an absolutely thrilling 10 years, and I can’t wait to see what the next 10 hold. Thank you so much to everyone who has helped and supported and generally been lovely to us over the years. It really is a wonderful profession to be part of.

Cathi x

Recently our Director, Cathi, took part in an interview with Professional Paraplanner where she was asked her 3 top tips from a compliance perspective to help paraplanners – this is what she said…

1. Get your head around charges disclosure – as best as you can!

Mifid II has caused all manner of bother, with very complex requirements that, for the most part, simply can’t be met right now, due to lack of information from funds and providers. But this will change from April, with enhanced reporting required from them.

So it’s important to start with a clean sheet, understand what disclosure is needed, and how you will turn that into something clear and understandable for your clients. As ultimately, that’s all that matters. Don’t get bogged down in detail that doesn’t benefit the client!

2. Be clear on the difference between a client’s needs and objectives.

Objectives being what clients want to achieve (retire at age 60, pay off mortgage, for example) while their needs are often identified by the planner, being more quantifiable, and more essential (£1,500 net per month in retirement for example).

Sometimes needs and objectives work in harmony. But sometimes they are mutually exclusive, and the planner may have to work with the client to understand the importance of their needs.

As a paraplanner, knowing this distinction, and challenging a factfind that doesn’t provide sufficient detail to enable you to identify both objectives and needs, will mean a more robust file, clearer process and more suitable advice.

3. Familiarise yourself with COBS 9.4.

Before you fall asleep, hear me out! At the recent Professional Paraplanner Technical Insight Seminar I presented at, almost every single paraplanner was amazed that in the Conduct of Business Sourcebook, the FCA only ask for three things to be in the suitability report.. 3!

1. The client’s objectives

2. Why the advice meets those objectives

3. What the disadvantages are.

Everything else, in theory, will be on the file, or in supporting documentation, such as an illustration.

In reality, we all put more than this in, as you want a single document clearly explaining the advice to clients.

But being familiar with the actual FCA requirements can really help you assess how your firm is approaching reports, and whether any improvements can be made.

For more information on how our sister company, Apricity, do compliance – head over to their website. 

The first part of this series of blogs, looked at the regulatory need to consider a Centralised Investment Proposition (CIP) and the role of Product Intervention and Product Governance (PROD). There does however need to be more benefit for a firm than just ‘box ticking’ and we will consider some of the benefits, along with potential disadvantages, of a CIP.

Consistency

  • Advisers within the firm will have a set process to consider with clients, reducing the likelihood of one adviser using a considerably different approach to another.
  • A consistent process will help with oversight for geographically distributed firms.
  • Annual reporting to clients and reviews can be streamlined.

The FCA have previously highlighted inconsistency between advisers’ recommendations at the same firm as a cause for concern.

Risk

  • A demonstrable process for investment selection can avoid appearing to ‘shoehorn’ clients.
  • A formalised assessment of a particular investment can help if issues arise years later – without a CIP it might be difficult to show how the investment was researched and selected.
  • Similarly, effective due diligence on an investment can show, if future problems arise, the selection was based on good faith and on the publicly available/reported information.

Time

  • Reduction in need to ‘fund pick’ for every client freeing up time for other elements of the advice process.
  • A recommendation to use an investment within the CIP will not need to be researched to the same level for a particular client as it would without a CIP in place.

Processes

  • Streamlining the way in which clients are reported to, which can help set the depth of the overall ongoing proposition.
  • A way in which to review and keep track of the investments used, can be established internally. This would eliminate this requirement from otherwise needing to be part of the general day-to-day tasks.

A CIP can save time for the firm in the long term and for firms with growing numbers of advisers, it offers an excellent way of keeping a consistent approach for the firm to follow. A CIP has some potential disadvantages however to be aware of, the main two being:

  • Advisers attempting to fit clients to segments/investments, potentially being blinkered into thinking a certain client and segment fit better than they do.
  • Using the CIP as a way to avoid any consideration of suitability to the client in particular. If a client falls within a segment and has a particular risk profile, it should not be an automatic conclusion that they use that investment.

While creating a CIP can demonstrate that clients are not being shoehorned, there is also a danger that it can breed this exact issue. A detailed client segmentation exercise followed by a CIP which covers various types of client category along with processes for using a bespoke solution can offer a way to avoid this. In the next part we will look at the steps you might take to create your own CIP.