Why now may be the time to review your CRP

5 min read 26 May 20

The information contained in this page is for professional Financial Adviser use only.

We’ve experienced an unprecedented market slide since February. The sheer speed – and the root cause – have created a sense of crisis and uncertainty.

There’s been talk that creativity can come out of times of crisis; we may not reach the levels of Isaac Newton and Shakespeare during the plague, but it may be the perfect time to reflect on existing client propositions and processes.

I’m sure there are many quality client conversations happening about investing for the long term, the benefits of diversification and buying opportunities when prices are low. But, after the recent volatility, there are questions to consider.

Attitude to risk (ATR) and capacity for loss (CFL)

Are processes for determining ATR and CFL categorising clients appropriately?

Have any clients discovered that what they thought they could tolerate isn’t valid anymore, as their lives and livelihoods are turned upside down?

Client communications

Have you been able to deliver the right messages to the right clients, at the right time, in the right way?

Do you have the right technology to suit your business and your clients? And how do you know?

If you haven’t already, perhaps it’s time to establish a client council or a feedback process, so you’re well placed to meet future challenges.

Asset allocation

Model portfolios may well have changed well beyond the target set at the last rebalance. And, you’ve maybe also had to deal with some fund suspensions that make up one of the key asset classes you use. This has been a recurring problem for many advisers, where the asset allocation wasn't their creation in the first place – it’s just what ‘risk profile 5’ says you have to hold!


What about the time spent rebalancing?

With such volatile markets, when should you do your next rebalance? What should the asset allocation be – and should it include Property?

And the all-important question of cash. Should it sit inside or outside the model, and how much should each client hold, especially if their ATR or CFL has changed – not to mention their objectives.

Running advisory models

The admin needed to be MiFID II compliant has been a source of debate for a while now – particularly for those running advisory models. For many, the advantages of running discretionary models have outweighed disadvantages associated with collecting and recording client consent. Not to mention having to run multiple versions of the models for clients who haven’t accepted a rebalance. This issue has been exacerbated by recent volatility. Some advisers may well have put new money into a revised model, only to find the ‘new’ property fund is suspended the next day.

Does running advisory models have the same advantages in a bear market? 

It’s certainly not easy to explain to clients why their investments are down 20%. The news is always more palatable in a bull market when it’s up 10-15%.

However, if running models does add value to clients and your business, then maybe it’s time to consider whether you’re charging enough.

What’s the answer? 

It depends on your business model and your clients. But, here are some things to think about.

1.  In a fast moving market, make sure a slow moving client is in the correct CRP or CIP.

Clients who respond quickly to your rebalance requests and really value the extra work to run your model portfolios, are probably suitable for advisory models. Others may not be.

2.  Look at clients who aren’t in the current version of your model portfolio.

If you’re running multiple versions for clients who haven’t accepted a rebalance, those clients may be better suited to a multi-asset fund or an outsourced DFM proposition. Or a platform that doesn’t create version control issues, by holding multiple historic models.

3. Check whether you’re happy to include illiquid assets.

Rebalancing portfolios, providing lump sums or income can be problematic. Should you look at alternative assets for your portfolio, or just hold property outside of the model?

4.  Make sure you’re managing cash effectively.

Cash as an investment and cash to pay income or fees are two different things. Your client might not get the optimum rate on their investment, or interest on their cash account. You may not even need to manage cash for some clients, if your platform has an auto-disinvest function that fits in with a client’s CRP.

5.  Look at the total cost of ownership and consider alternative investment options.

Clients are more likely to scrutinise costs when values drop or they experience extreme volatility. Perhaps it’s time to consider ETFs, direct equities or Investment Trusts if they’re appropriate for your client. ETF models may well become more popular, with DFM direct equity portfolios not far behind. And make sure your platform can fully support this in the most cost effective way for clients, via intraday dealing and without any additional trading costs.

6.  Establish your PROD processes.

Rules state that manufacturers (Investment Houses) can ask advisers to provide MI on the use of their products (Funds). Does your PROD target market process make this easy? They could ask you:

  • Which of your target markets have our funds been distributed in?
  • Do these match our articulated target markets?
  • Have clients asked about the performance of our funds?
  • Have you had any complaints about the outcomes our funds have delivered?

A proposition and process overhaul may seem daunting, but the key is what you do best. Having an unrelenting client focus, that translates into clarity about your target market and your proposition for that market. The current crisis could provide the perfect opportunity to stress test and refine.

For more information about how advisers approach their CRP, download our free, comprehensive benchmarking research.