3 min read 18 Mar 22
The onus on advisers to demonstrate their advice is appropriate has never been greater. The FCA’s PROD rules were introduced four years ago. These stipulate that solutions and products must meet the needs of one or more identifiable target markets. They must also be distributed appropriately and deliver good customer outcomes.
This July, the UK regulator is also scheduled to finalise its Consumer Duty rules, and plans to introduce them in April 2023. These will require all retail financial services firms (not just advisers) to focus on’ supporting and empowering’ customers to make good financial decisions and avoiding foreseeable harm at every stage of the customer relationship.
Firms will, the FCA says, have to provide consumers with information they can understand. They must offer products and service that are fit for purpose and provide helpful customer service.
Together, PROD and the Consumer Duty rules mean that the needs and expectations of each client have to be interrogated as never before. Not only in terms of the products and solutions they are advised to adopt, but also the information and service they receive.
The question for adviser firms is how to achieve (and demonstrate) this client-centric approach for a client bank that may number in its thousands. One step may be centralisation.
Centralised investment propositions (CIPs) and centralised retirement propositions (CRPs) have grown in popularity among advisers as firms look for a centrally-agreed approach to advising clients at different life-stages.
For the last three years, M&G Wealth in partnership with consultants NextWealth has conducted a survey on the take-up of CRPs by adviser firms. The newly-released 2022 research indicates that over three-quarters (78%) of firms have or plan to introduce a CRP.
CIPs and CRPs are typically used in firms to provide a common and consistent approach to a range of activities involved in the accumulation and decumulation phases of a client’s investment life – as Figure 1 shows. (Note - for a retired client a CRP may be introduced to sit alongside the CIP.)
CRPs and CIPs can (wrongly) be associated with commodifying advice and shoehorning clients into a one-size-fits-all solution. But CRPs and CIPs are there to centralise the advice process NOT the recommendations that come out of it.
For example, a feature of 79% of CRPs, according to our latest research, is a centralised approach to calculating an appropriate level of income withdrawal. By adopting a common approach to calculating a withdrawal rate, firms can ensure clients get the same advice whoever they speak to in the firm. But provided the chosen calculation approach is robust, each client will still get an individualised answer that’s right for them.
The same blend of ‘robust standardisation to deliver deep personalisation’ can apply to a whole host of activities – from calculating clients’ attitude to risk to building their investment strategy to assessing client vulnerability. And it may be key to enabling PROD, Consumer Duty rules and any other suitability requirements to be viable and scalable in a world where the need for advice on wealth management and retirement planning is on the rise.
The Consumer Duty proposals have been dubbed the biggest change to regulation since the Retail Distribution Review a decade ago. If firms are going to deliver on the new rules in a sustainable way, then frameworks need to be in place to maximise efficiency of the ‘process’ elements of advice.
Firms will then be in a position to focus more on those bespoke aspects that can ‘support and empower’ clients: one-to-one discussion, tailored communications and education, and the ‘helpful customer service’ that the FCA is keen for firms to deliver.
In the advice world, the debate over the correct balance between client standardisation and customisation is always ongoing. As the nuts and bolts of the Consumer Duty requirements take shape, it’s a debate that will be more important than ever to ensure the best outcomes for clients really do take centre stage.
We've launched our third annual research report into Centralised Retirement Propositions.
Or you can catch up on last year's research report.
Or check out our guide on how to build your CRP
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