23 Nov 2020
Long ago when I first joined the financial services industry, the acronym ‘CIP’ didn’t exist and nor did the process to which it refers. It’s probably unfair to use the oft quoted ‘pin sticking’ analogy, but there was certainly a culture where research was largely limited to a flick through the life and pensions supplement of a particular trade publication.
Thankfully, most would agree that the post-RDR world is a much more professional place. With many firms recognising the importance of paraplanning, the process of matching clients with a suitable product or service has vastly improved in recent years. If we also factor in the increased use of Fintech, cash flow modelling and other back office systems, it’s clear that the combination of a team approach to financial planning is a much more robust way of meeting the expectations of clients.
The primary benefit of a well-designed CIP is that it creates a consistent and repeatable approach, which should produce better outcomes for investors. It should also enable a firm to operate more efficiently – with more time dedicated to offering clients the level of service that demonstrates value for money. It goes without saying that if the CIP is operated robustly and is well documented, then the regulatory risk to a business is significantly reduced.
So where do you start? The first questions would usually relate to the philosophy that a firm lives by and the tools that it uses. This should be documented to form the basis of a client service proposition. Common questions are:
Having a structured advice process, containing several stages that are each underpinned by a robust methodology, will set your firm apart from the competition and help you to target the type of clients who see the value in the services that you offer.
We shouldn’t underestimate the plethora of financial planning needs of most clients, but the bread and butter for most firms remains the accumulation or preservation of wealth. Increasingly, many firms are introducing lifestyle and life planning questionnaires into the process, along with cash-flow modelling software tools seeking to respond to increasingly sophisticated client needs and to differentiate their service from the competition.
Firms use a variety of tools to determine a client’s attitude to risk, involving scientific approaches such as psychometric testing and questioning techniques, but there’s no substitute for a good old fashioned discussion with your client where you can probe and challenge their attitude to risk and their understanding of the impact of market volatility on their investments.
Many books have been written on asset allocation and the impact – both positive and negative – on long term investment performance. Asset allocation needs to be set at a strategic level, based on the client’s appetite for risk over the longer term and meeting the client’s expectations as determined by the risk profiling exercise. Some form of tactical overlay may then be considered to respond to shorter term shifts and trends in the market, but the strategic position should remain the starting point.
This is an equally important stage of your investment advice process and you should ensure you choose funds based on a combination of quantitative and qualitative factors. The quantitative elements centre on performance and risk with a number of measures used in each area to provide a comprehensive picture.
The qualitative assessment of any fund seeks to assess how the fund will perform in the future. The purpose of this part of the analysis is to ensure that the fund has robust fund management processes in place and a strong fund management team, and the qualitative screen allows a more detailed look at the how the fund operates.
By combining both quantitative and a qualitative research, you build up a thorough understanding of the fund, and how it works in different investment conditions, which then feeds through into selection for portfolio building.
Not least to ensure that you can justify the payment of ongoing remuneration, you need to have a formal process for monitoring the underlying funds, forming part of your recommendations made to clients and for reviewing performance and any required rebalancing.
Once your investment strategy and process have been agreed, selecting a platform will be easier and at this stage, some solutions may be eliminated depending on the approach you want to take.
By spending time reviewing your investment strategy, you will provide focus by delivering a world class client service that will allow you to continue the journey towards delivering improved levels of advice and building trust with your clients.
Jon Lycett, Business Development Manager, RSMR
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This information is for UK Professional Advisers only and should not be given to retail clients.The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.
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