To reduce work and save time, more and more advisers have been outsourcing their centralised investment propositions (CIPs).
With the Consumer Duty implementation deadline now in the rear-view mirror, is it time for advisers to consider how outsourcing their CIP can benefit both the business and end-client outcomes?
The benefits of outsourcing depend on the nature of the advice business and client proposition. However, over the past decade, since the genesis of regulatory guidance on assessing suitability, many advisers have begun to recognise that as well as saving time and money, outsourcing can help mitigate risk.
…access to wider investment opportunities, thought leadership and expertise.
Additionally, outsourcing can offer clients access to wider investment opportunities, thought leadership and expertise. Crucially it can also help advisers maintain robust processes against a background of constant regulatory change. So, let’s take a closer look at the pros and cons of outsourcing your CIP.
The benefits of outsourcing:
- Business efficiency - both in terms of potential time saved, and redirecting efforts to spending more time with clients.
- Cost efficiency - outsourcing a CIP eliminates the need for costly specialist resource, and offers the opportunity for a focus on alternative growth initiatives within the business.
- Expertise and specialisation - outsourcing allows advisers to access the expertise of specialised investment firms (for example, sustainable investing solutions experts), and well-resourced processes.
The drawbacks of outsourcing:
- Loss of control – while the adviser maintains oversight of the outsourced investment provider, the ultimate investment decisions rest with the outsourced firm.
- Enhanced due diligence obligations - advisers must carefully scrutinise outsourced solution providers to ensure the investment strategies align with their client’s goals.
- Regulatory compliance – advisers must ensure that the outsourced provider complies with all applicable regulations. Failure to do so could lead to legal and reputational risks.
The FCA’s Consumer Duty requires firms to assess, test, understand and evidence the outcomes their customers receive. The new rules place increased responsibilities on advisers such as new reporting and monitoring requirements, as well as avoiding causing foreseeable harms to retail customers. For many advisers this has led to significant advice process changes, additional business risks, and costs. This heightened regulatory scrutiny has also fuelled an increased use of outsourced solutions such as multi-asset funds.
Under the Consumer Duty, advisers must clearly document how the features and benefits of an investment solution meet the needs and characteristics of their clients. This adds focus to the existing advice process obligations of KYC, COBS and PROD*, and puts increased emphasis on how advisers segment their clients and align appropriate investment solutions.
Delivering a CIP that meets the needs of sustainable investors adds an extra dimension of scrutiny and responsibility…
Hot on the heels of the Consumer Duty, new regulations in the form of the Sustainable Disclosure Requirements (SDR) will be rolled out in the UK. Delivering a CIP that meets the needs of sustainable investors adds an extra dimension of scrutiny and responsibility onto investment processes. This is especially the case when aligning a client’s sustainability considerations while maintaining the appropriate attitude to risk.
Aside from the benefits of outsourcing a CIP for ‘traditional investments’, Consumer Duty and SDR, plus existing advice obligations, suggest that a specialist outsourced solution for sustainable investments could help advisers in managing this additional liability. A sustainably focused risk-profiled multi-asset fund can be an appropriate solution to manage these significant challenges.
Consumer Duty requires all firms to revisit and look closely at the products and services they distribute to clients. Outsourcing a CIP could potentially save advisers considerable time, while reducing costs, and mitigating both business and investment risk. Irrespective of your views and your choice of CIP, industry-leading multi-asset solutions providers can offer you options across passive, active, and sustainable investing.
Visit our investments website to find out more about multi-asset solutions designed to meet your clients’ needs and long-term financial goals. Or visit our adviser website to find out about the impact of the Consumer Duty.
*KYC = Know Your Client, COBS = Conduct of Business Sourcebook, PROD = product intervention and product governance