A Centralised Investment Proposition, or CIP, can help you provide investment advice consistently and efficiently. But having a documented CIP doesn’t, by itself, prove that clients are receiving good outcomes.
Under Consumer Duty, firms must monitor the outcomes customers experience, identify risks or poor outcomes and take appropriate action. The FCA has also made clear that collecting data or producing management information isn’t enough. You need to show what the evidence tells you, what you did in response and whether that action improved outcomes.
For your CIP, that means being able to demonstrate:
- Who it’s for
- Why it meets their needs
- How it’s being used
- What outcomes clients receive
- What you change as a result
Here’s how to build that evidence clearly and proportionately.
1. Define who your CIP is – and isn’t – designed for
Start by clearly defining the clients your CIP is intended to serve.
Depending on your proposition, this could include their:
- Investment objectives and time horizon
- Attitude to risk and capacity for loss
- Need to access their money
- Investment knowledge and experience
- Service and communication needs
- Characteristics of vulnerability
Your target market should be specific enough to help you decide whether the proposition is likely to meet a client’s needs. The FCA requires manufacturers to define target markets at a sufficiently detailed level, taking account of the product’s characteristics, risks, complexity and nature.
It’s equally useful to record who the CIP may not be right for. For example, it may not suit clients who need highly bespoke investment management, unusually short-term access to their money or a different level of investment risk. This helps demonstrate that the CIP isn’t being treated as a default solution for every client.
For more on balancing a consistent process with the flexibility to meet different client needs, read One size doesn’t fit all: Why flexibility defines our investment proposition.
2. Explain why the proposition meets those needs
Your CIP documentation shouldn’t just list the platforms, funds, model portfolios or discretionary fund managers you use.
It should explain why the proposition is appropriate for its intended clients. Your evidence might include:
- Due diligence on the solutions included
- How investment risk is assessed and mapped
- The range of strategies available for different client groups
- Costs, features and limitations
- Alternative solutions considered
- Any foreseeable risks of harm and how they’re managed
- How the proposition supports clients with characteristics of vulnerability
You don’t need to produce a huge pack of documents. The important point is that another person should be able to follow the reasoning behind your decisions.
Your evidence should also be updated when something material changes, rather than being written once and left untouched.
3. Consider fair value across the whole proposition
Fair value isn’t simply about choosing the cheapest fund.
Under Consumer Duty, value is the relationship between what a customer pays and the benefits they can reasonably expect to receive.
When reviewing your CIP, consider the overall costs clients pay, which may include:
- Advice charges
- Platform charges
- Fund or portfolio charges
- Discretionary management charges
- Transaction or additional service costs
You should then consider those costs alongside the benefits clients receive. That could include investment management, financial planning, regular reviews, rebalancing, access to advice and ongoing support.
It’s also important to establish whether those benefits are actually being delivered. For example, if ongoing reviews form part of the service clients pay for, your records should show that those reviews are taking place.
The FCA’s fair-value guidance says assessments should reflect how decisions were made in practice. They shouldn’t be created retrospectively to justify an existing proposition.
4. Keep individual suitability separate
A client may fall within your CIP’s target market without every solution in that proposition being suitable for them.
Your client file still needs to explain why the specific recommendation meets that person’s needs and circumstances. This could include:
- Their objectives and investment timeframe
- Their attitude to risk and capacity for loss
- Their need for income or access to funds
- Their knowledge and experience
- Relevant vulnerabilities
- Why the selected solution is preferable to the alternatives
When you’re recommending that a client moves from an existing investment, the file should clearly explain why the change is in their interests after costs, features and potential disadvantages have been considered.
A well-designed CIP can support a consistent advice process, but it can’t replace individual judgement.
For more practical guidance, read What does a good Annual Suitability Review look like?
5. Monitor the outcomes clients receive in practice
Your review shouldn’t stop at confirming that the CIP’s documents and investment research are up to date.
You also need to look at what clients are experiencing in practice.
For a smaller advice firm, this doesn’t have to involve complicated systems or large volumes of data. The FCA says smaller firms can use a focused set of meaningful indicators, provided they can explain what the information shows and how they’ve responded.
Relevant evidence might include:
- Findings from client file reviews
- Complaints and their root causes
- Client feedback
- Clients placed outside the intended target market
- Reasons clients leave, switch strategy or withdraw money
- Whether agreed reviews and services are being delivered
- Whether clients with characteristics of vulnerability receive different outcomes
- Recurring problems with suitability or client understanding
Don’t collect information simply because it’s available. Choose measures that can genuinely help you identify whether your CIP is delivering the outcomes you intended.
For example, a high review-completion rate may look positive. But it doesn’t tell you whether clients understood the recommendation, received the service they paid for or remained in a suitable investment.
Our Independent Financial Adviser Compliance Checklist provides a broader overview of monitoring outcomes, record keeping and other ongoing compliance responsibilities.
6. Record what you decided and changed
The clearest evidence connects your monitoring to a decision.
Keep a straightforward record of:
- What you reviewed
- What the evidence showed
- Any risks or poor outcomes identified
- What action was agreed
- Who is responsible and by when
- How you’ll check whether the action worked
An outcome could be as simple as identifying that clients don’t understand part of your investment documentation, rewriting it and then checking whether the revised version improves understanding.
Equally, your conclusion may be that no changes are needed. But “no change required” should be supported by the evidence you reviewed, rather than being the default outcome of every assessment.
Introducing a new checklist, template or system isn’t evidence of improvement on its own. You should also check whether it delivered the result you expected.
Are you a manufacturer or a distributor?
Your responsibilities will depend on the role you play in developing and delivering the proposition.
If you adopt and recommend an existing proposition, you’ll often be acting as a distributor. If you create an in-house proposition or determine or materially influence important features, you may have manufacturer or co-manufacturer responsibilities.
The substance of your role matters more than the label used. Where several firms are involved, responsibilities should be understood and recorded clearly.
ValidPath provides additional compliance support for in-house portfolios where an adviser is considered a manufacturer under Consumer Duty.
A simple CIP evidence checklist
You should be able to show:
- Who your CIP is and isn’t designed for
- Why its solutions meet the needs of those clients
- How you’ve assessed overall price and value
- Why individual recommendations remain suitable
- Which information you use to monitor client outcomes
- What issues you’ve identified and addressed
- Whether your actions improved outcomes
- Whether you’re acting as a manufacturer, distributor or both
The strongest evidence doesn’t necessarily come from creating more paperwork. It comes from connecting the work you already do – understanding your clients, conducting due diligence, documenting recommendations, reviewing files and acting on what you find.
Build or adopt your CIP with ValidPath
ValidPath Members can choose to use the ValidPath Investment Proposition or create their own CIP with step-by-step guidance, detailed written reviews and ongoing support until the proposition is approved for use with clients.
This gives you the flexibility to build an approach that reflects your investment philosophy, business model and client base, with additional support where your responsibilities extend to manufacturing an in-house proposition.
Contact ValidPath today to discuss how we can support you to build or adopt your CIP and grow your business with confidence.
