Written on 16/07/2021


Centralised Investment Propositions have proved popular over recent years with 4 in 5 adviser firms having a CIP in 2017, and the trend growing.  

With the FCA’s focus on Retirement Income advice, just what is a Centralised Retirement Proposition, and do you need one?

A CRP can help a firm manage their risk and protect against any unintended consequences of advice.  Standardising an approach within a firm ensures that all advisers take a consistent approach on retirement planning advice.  The advice given is still around suitability for the individual client, but having guidelines or parameters assists in ensuring that the firm adhere to the FCA requirements whilst providing clear guidelines for clients.  You cannot build scale in retail financial services without standardising process.

There are key areas to consider with a CRP:

  1. Advice Principles
  2. Capacity For Loss
  3. Sustainability of Withdrawals
  4. Planning Tools
  5. Withdrawal Policy
  6. Review Process

Where do you start?  Start with your client bank and look at analysing your Drawdown clients – What percentage of income are they taking? What is the percentage of the pension income of their entire wealth? What is their ATR?  What age are they? Did they access solely for a lump sum?  There are a multitude of questions you could ask to ascertain how your client bank looks in this area.  The FCA’s main concern is suitability of advice and sustainability of income so ensuring those areas are covered as part of an advice process and CRP is key.

Once you know what your client bank looks like, you can work through the key areas to devise a CRP that works for your firm, adheres to FCA requirements on retirement advice and helps the firm manage risk.  If you choose to have a CRP, as a firm you need to decide what is acceptable to you and how you go about advice that falls outside of your acceptable parameters – in particular surrounding areas such as a Client’s CFL, their ATR and Level of Withdrawals.  Perhaps you choose to implement a pre-sale checking process for those that fall outside of your parameters; clients are all different after all and advice must be based on their circumstances so advice outside of parameters is not automatically wrong.  A good CRP and inclusive processes, for advice and compliance, should provide consistency but not be limiting to either advice or the client.

An excellent planning tool as part of assessing suitability of retirement income is the cashflow.  This helps to model an appropriate and sustainable level of income for the client and assists in affirming the suitability of a piece of advice.  The good use of cashflow helps to manage the firm’s risk by assessing the suitability and sustainability of a recommendation whilst also being a useful pictorial aid for clients so they can really “see” how their pension will work for them.  Using a cashflow well to model scenarios such as stock market crashes or the effect of a death on a spouse help add value to your proposition.  BAT has a cashflow tool available from its dashboard that many firms find useful.

So, do you need a CRP?  It should not just be a question of need; you should want to have one.   Processes are essential in financial advice and with retirement income advice being the FCA’s particular focus and an incredibly important element of a client’s advice life cycle, why wouldn’t you want to implement something that is good for both your firm and your client.

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