A Centralised Retirement Proposition, or CRP, seems to be the new talking point in town. No surprise really considering the market has turned on its head in the last five years and we have more clients than ever going into drawdown. Whenever I talk about the concept of a CRP however, I'm always asked the same things:
What exactly is a CRP and why do I need one? So let's start at the beginning and forget about CRPs for a second….let's consider a Centralised Investment Proposition. This is where, to quote Adele, I ‘turn the tables' and start to ask a series of questions with the most common or frequent answers listed:
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Question |
Typical response |
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Do you currently have a CIP? |
Yes |
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Does this include a range of options? |
Yes, typically Adviser Model Portfolios, Discretionary Model Portfolios and Multi Asset funds |
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Has it been reviewed recently? |
Not really |
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When constructed, what were the main considerations? |
Risk profile of the client and wealth |
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Why did you implement a CIP in the first place? |
Concerns about regulatory change, means we have a consistent process that is repeated across the firm. It demonstrates we've done our due diligence and have robust governance in place. |
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Does it primarily focus on clients in accumulation? |
Yes, probably |
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Would you agree that the needs and objectives of clients nearing and / or going into retirement differ? |
Well, yes |
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Therefore the associated risks and concerns will also be different? |
Yes |
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Are any of these risks and concerns taken into account within your CIP? |
Hmmm… |
You can see where I'm going with this.
What we ultimately think advisers need to consider is if their existing CIP needs to be reviewed and developed to reflect the differing needs of their retirement clients.
The main consideration for clients in accumulation is really how much risk they're prepared to take - that tends to be the starting point in the advice process. For clients approaching and entering retirement however, that question comes later on and this is why it's important to consider that a Centralised Investment Proposition, for me, really is about the client's attitude to risk.
A Centralised Retirement Proposition however is so much more - there are two elements in my view. Yes, you need the right investment solution, but is their attitude to risk the driving factor? Probably not. Advisers know their clients and it's unlikely their attitude to risk is going to change overnight - but what is going to change is that the event they've been saving for is here. It's right in front of them. They're making plans or assumptions based on the amount of money they have right now - can they really afford or are they prepared to take the rough with the smooth now, in the same way they did when this event was way off in the distance? For most clients, probably not - and that, I believe, should be the driving factor here. It isn't their attitude to risk, it's their capacity for loss….or ability to bear loss as the regulator now refers to it.
Investment approach is therefore one layer of a Centralised Retirement Proposition and should be driven by the clients ability to bear loss, rather than their attitude to risk. If your client is approaching or enters into retirement, are they genuinely comfortable with the same investment solution they've been in throughout their accumulation period? Do they understand the investment risk that comes with this? If they suffered a fall in the market just before drawing an income or once they start, do they understand the impact this would have? Is this sustainable? Attitude to risk is still part of the consideration, but capacity for loss becomes the real driver.
The second strand of a Centralised Retirement Proposition is your process. Elements of this include evidencing the clients income strategy and stress testing the solution put in place - but this is a whole other article in itself!
So, what is a centralised retirement proposition and why do I need one? It's a way of clearly demonstrating the consistent approach your business takes for all drawdown clients. While putting in place investment solutions that reflect the risks associated for these clients and the governance within your business around these. I suppose the question really is - can you afford not to have one?
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