Shoe Horning
Nathan
Member
Hey
I wanted to pick up on one of the topics started yesterday at the main Pow Wow about shoe horning.
I agreed with a lot of the comments that we need our businesses to be profitable to remain a sustainable asset to our clients,, however the regulator could argue that if the majority of us agree that asset allocation drives investment returns and no-one can predict investment markets, then what argument have we got to move a policy? other than cost, ongoing viability of the company and perhaps not being able to access all of the asset classes required to populate your own asset allocation model?
I genuinely am interested as I wholeheartedly agree that business owners should be able to implement what they perceive to be the right solution for both the client and the business, I just do not know how that stance would be perceived by the regulator?
Thanks in advance...…..
Comments
We've recently moved from being all about the cheapest (functional) platform for the client dependent on case size to a more streamlined/preferred supplier model.
The issue we had was that being 'ultra' independent meant we then had clients, on Aviva, Cofunds, Aegon ARC, Standard Life, OMW, Elevate. Fidelity etc etc. Having to suffer multiple upgrades, the building of many many portfolios, understanding the nuances of each platform and varying timescales and SLAs meant as a firm, we were not as efficient as we could be. This will invariably lead to issues, mistakes and eventually increased costs for the clients.
A preferred platform means improved efficiency for us and the clients which you would hope and believe feeds through to lower coss for the end client.
Happy to contribute my two pence worth Nathan! ;-)
I heard some good arguments at the Powwow for why firms should be able to use CIPs and I think this has helped clarify my thoughts on this issue. The way I'm thinking of it now is as follows:
We sometimes forget that suitability is not about recommending the most suitable platform, ISA or fund etc, it's about recommending a solution that is simply 'suitable' i.e. you could recommend a number of different solutions that would be equally suitable and would all meet the FCA rules.
If there is no one 'right' investment solution, what does it matter whether one firm uses this CIP or another firm uses that CIP. Surely, as long as the CIP, say a model portfolio, is suitable to meet the clients objectives in terms of attitude to risk, capacity for loss, timeframe, performance etc, what's the issue?
If through the use of a CIP the firm can provide an overall cheaper service to a client because of the efficiencies this brings to the firms processes etc, this should be taken into account as part of the suitability assessment.
For example, I believe the firm could legitimately charge a client a higher fee to manage a non-CIP solution*. Therefore, if the solution using the CIP is cheaper than a solution without the CIP, you've then at least got the cost side of the suitability assessment boxed off.
I think the problems arise with CIPs and shoe horning when, like Richard Allum mentioned at the Powwow, firms don't have a robust exceptions policy or conflicts of interest aren't sufficiently and clearly disclosed.
* Because our firm records all time we could easily evidence that the time/cost of managing a bespoke portfolio on some random personal pension or platform we don't ordinarily use would result in us having to charge the client a higher fee each year. If you're not recording time, how would you evidence this?