By Bordier UK
Centralised investment propositions (‘CIPs’) have been around for some time. The FCA first gave guidance on related product governance requirements, and then enshrined their requirements into the PROD sections of MiFID II.
Whilst no regulation specifically states any rules solely for centralised retirement propositions (‘CRPs’), the principles laid down in PROD cannot be ignored. The regulator seeks process and the introduction of the PROD rules has intensified the need for that process to be defined and auditable. No longer can clients be segmented by investable assets but are now targeted by group and by need.
PROD 3.3.15 R (1) states that advisers must have in place ‘adequate product governance arrangements’ to ensure that investment services they provide to their clients are ‘compatible with the needs, characteristics and objectives of the identified target market’.
Outcomes for clients should be robust, repeatable and reliable. For advisers who are seeking to outsource their investment services, they need a partner that has a proven history of delivering exactly what the regulator is looking for – a proven robust, repeatable and reliable solution.
Do you need a CIP or CRP to conform to FCA requirements?
In theory no, but the need for an audit trail that will stand up to regulatory scrutiny should make the whole process more efficient and certain under a well-constructed CIP or CRP. You may need more than one investment solution within your CIP or CRP for different target markets, with the need to ensure all clients are covered, even those that do not fit neatly into a particular client group or need.
PROD also creates a requirement to regularly review the financial services and instruments that you offer, to ensure that they remain suitable as defined under PROD 3.3.15. R (1) above.
CRPs add additional complexity when compared to a CIP. Whilst the FCA cancelled the Suitability 2 review of retirement income, it is expected to return in some form. The principles and accountability already exist, through a combination of PROD and the SM&CR.
A CRP is much wider than a CIP, to encompass all the interrelated risks and challenges of retirement. Sequencing risk, volatility, income sustainability, ensuring that clients understand the potential journey, capacity for loss and understand the investment risk they need to take, not necessarily want to take to sustain income, through an unpredictable retirement path.
William F. Sharpe, winner of the Nobel Memorial Prize for Economic Sciences and creator of the Sharpe ratio, described pension decumulation as the ‘nastiest, hardest job in finance’.
That was some time ago and there are now tools available to help assess risks and the requirement to regularly review. Retirement can be long and varied – the perfect solution will not be the one that exists at day one of retirement, it needs to be able to change with circumstances. The process of a well-constructed CRP will help identify, mitigate and manage the risks.
Your choice of partner for your investment proposition is therefore crucial. Price and performance are the primary factors when selecting an investment manager according to most adviser surveys.
But they are not the only factors to help in achieving the compatible outcomes required by PROD. Service, working in partnership, experience, ethos, alignment, quality of reporting, interaction, and the ability to deal with all client types are some of the other factors that should be considered.
Outsourcing requires a long-term view. This is your central investment or retirement proposition. The FCA recognises that clients should not be shoehorned, and neither should advisers – every advice practice is different. Choosing the right outsourcing partner ensures the most robust of relationships between provider and adviser, and a smooth journey that meets the expectations of adviser and client.
Robust, repeatable, and reliable may be words we use in relation to your clients’ investment outcomes but your relationship with your outsourced investment provider should tick all those boxes for your business too.
At Bordier UK, we have been providing investment management solutions to UK intermediaries since 1981. This includes the design, creation and implementation of centralised investment and retirement propositions. We are part of the 5th generation, family owned Bordier Group, which is built on solid foundations with a strong Tier 1 capital ratio of 31.1%.
We know something of the words robust, repeatable and reliable – we apply them to our investment process and our long and successful track record of high conviction asset allocation calls. It helps when our Investment Committee has been headed by the same Chief Investment Officer for more than 25 years.
Ask us how we can work with you to provide a centralised proposition bespoke to your business and your clients’ needs. Experience counts.