Customised Retirement Propositions (CRPs) vs Centralised Investment Propositions (CIPs). Craig Muir, Senior Technical Manager, Royal London provides some insights from the FCA’s Thematic Review of Retirement Income Advice.
The FCA’s thematic review of retirement income advice shed light on the effectiveness and suitability of various advice models. Two prominent approaches examined were Customised Retirement Propositions (CRPs) and Centralised Investment Propositions (CIPs).
Both CRPs and CIPs aim to provide structured, efficient, and compliant approaches to financial planning, but they focus on different stages of the client’s financial journey. Helping a client to generate regular income from a portfolio of volatile assets, over an unknown time-period, represents a very different challenge to supporting them when accumulating wealth. Therefore, a different investment approach should be considered for clients in the accumulation and decumulation stage.
CRPs
CRPs are tailored financial plans designed to meet the unique needs and goals of individual clients as they approach and enter retirement. They take into account various factors such as a client’s risk tolerance, retirement goals, income needs, and personal circumstances. They are highly personalised, ensuring that each client’s specific needs and preferences are addressed. They offer flexibility in terms of investment choices, withdrawal strategies, and consider all aspects of a client’s financial situation, including pensions, savings, investments, and potential healthcare costs.
The FCA’s review highlighted several strengths of CRPs. They were generally found to provide suitable advice tailored to individual client needs, leading to better retirement outcomes. Clients with CRPs were more engaged in the planning process, resulting in higher satisfaction and trust.
However, the review also identified challenges, developing and maintaining CRPs can be complex and resource-intensive and ensuring consistent quality across all CRPs can be tricky, particularly for larger adviser firms with multiple client needs and perhaps multiple reporting systems.
CIPs
CIPs are standardised investment strategies designed to streamline the investment process for a broad client base. These propositions are typically used to provide consistent and efficient investment solutions.
And by centralising investment decisions, advice firms can manage multiple clients more efficiently.
The FCA’s review provided insights into the effectiveness of CIPs. They were found to be efficient in managing a large number of clients, reducing the time and resources required for individual client plans and the consistent approach of CIPs often led to lower costs for both advisers and clients.
However, the review also noted the standardised nature of CIPs means they may not fully address the unique needs of individual clients and may not be easily adaptable to changes in a client’s financial situation or goals. CIPs can sometimes lead to “shoehorning” clients into predefined investment solutions that may not be entirely suitable for their individual circumstances.
The FCA highlighted that both CRPs and CIPs should be adapted to meet the specific needs and goals of individual clients, rather than a one-size-fits-all approach. Regular reviews are essential to ensure that the advice remains suitable as clients’ situations evolve and proper risk profiling and cash flow management are crucial components of effective retirement income planning
Ultimately, the choice between CRPs and CIPs depends on the specific needs and preferences of the client, as well as the resources and capabilities of the adviser. By understanding the key differences between these two approaches, financial advisers can better serve their clients and help them achieve their retirement goals.
