Money Marketing: Ben Cooper: The case for consolidating CIPs

By: Benjamin Cooper, Head of Asset Management Partnerships, IFA and Wealth

Centralised investment propositions (CIPs) have become a core part of most advice firms. Not only because they reduce administrative time for advisers, allowing them to streamline their operations, but also because they have enabled advisers to deliver a consistent experience across their client base.

However, as the cost of delivering advice continues to rise, we have seen an increase in the number of advisory firms consolidating their CIPs.

The benefits of consolidation extend beyond just cost. Consolidation also allows firms to boost client outcomes, increase efficiency and reduce compliance burden. Many firms have seen positive outcomes for clients through consolidation.

A diverse CIP appears to offer better flexibility by tailoring investments to client needs while spreading risk across multiple providers. But, with discretionary fund managers (DFMs) and Managed Portfolio Service (MPS) solutions becoming increasingly indistinguishable, are clients and advisers better served with a simplified, high-conviction CIP?

Ensuring consistent client outcomes

While good customer outcomes should be at the heart of advice firms’ strategies, this is not always the case. A fragmented CIP offering can mean that different clients with similar objectives are recommended different investment portfolios and end up on different investment journeys, despite having the same goals.

Consolidation can help by aligning investment strategies with a firm’s advice philosophy and client goals. With a streamlined approach, advisers can develop expertise in a singular, well-structured proposition. This can reduce suitability risks and help ensure clients receive the right fit.

Partnering with fewer providers has a secondary benefit for many firms, as it provides them with the opportunity to negotiate better fees and enhance support packages. This can reduce costs for clients and improve the overall value they are able to deliver.

Enhancing operational efficiency

Juggling multiple investment options can add complexity, increase administrative work and drive up costs. Consolidation offers advice firms a solution.

By consolidating their CIPs, compliance and due diligence become easier to manage with fewer strategies to oversee. Crucially, advisers can spend less time researching, reviewing and reporting on various portfolios.

In turn, this can make initial recommendations and annual reviews far more efficient. Most importantly, less time spent on investment admin means more time with clients, boosting productivity and ultimately strengthening relationships.

Reducing regulatory risk and compliance burden

Regulation, particularly under FCA’s Consumer Duty and PROD rules plus MiFID II, requires independent financial advisers to demonstrate that their investment propositions provide value and meet client needs.

A consolidated CIP simplifies compliance by reducing the number of investment solutions that require monitoring, as well as helping to enhance suitability reporting with a clear, structured approach to investment recommendations.

It also allows for greater client understanding, therefore reducing risk, as investment advice is standardised across a firm.

A clearly defined CIP also reduces risks by helping advisers understand who exactly the proposition is for, and crucially, who it isn’t for. This means they are less likely to risk shoe-horning a client into a CIP, when that approach may not be the most suitable fit for them.

The rise of adviser as DFM

With operational costs rising and growth slowing down, firms are increasingly looking for ways to maintain momentum.

One key trend is the rise of advisers launching their own discretionary fund management businesses, where firms manage investments in house rather than relying on third-party managers.

For advice firms considering whether it’s in their best interest to launch their own DFM, there are several options to consider: build, acquire or partner. If the idea seems daunting, firms can rely on a strategic partner to ease this process.

This means that advisers can remain focused on delivering value for their customers and driving growth for their businesses.

As the economic environment and investor demands shift, advice firms need to think carefully about how to navigate the challenges of today to achieve scalable growth for themselves and their clients.

Consolidating a CIP, whether under discretionary permissions or those of a trusted partner, isn’t about simplifying investment management. It’s about creating a more efficient, scalable and client-centric business model.

Focusing on delivering the best possible client outcomes will be the key to helping advisers strike the right balance and staying ahead of the curve.