View more on these topics

Advisers back FSA concerns over CIPs

Investment advisers say the FSA has raised valid concerns about firms’ use of centralised investment propositions and the regulator’s recommendations are “basic good practice”.

The FSA published a guidance consultation on replacement business and CIPs last week. Replacement business is defined as switching a client out of an existing investment into a new one. CIPs refer to standardised approaches to advice, including model portfolios, discretionary investment management and distributor-influenced funds.

The regulator raised concerns that firms were transferring clients into CIPs without assessing individual suitability and that firms were swit ching clients out of existing investments without justifying additional costs.

Equilibrium Asset Management investment manager Mike Deverell says: “Firms can use a centralised model but there needs to be some flexibility to tailor that service. A lot of the guidance is basic good practice but, to be fair to the FSA, the industry has been pretty bad at implementing basic good practice over the years.”

Skerritt Consultants head of investments Andy Merricks says: “If a new investment is going to cost more there has to be clear benefits to the client. If those benefits are not made clear, you have to question why a client is being moved. Models are an efficient way of running money but you cannot use one model to fit everybody.”

Investment Quorum chief executive Lee Robertson agrees it is questionable where clients are transferred out of suitable investments.

But he adds: “The FSA says it wants consistency of outcome. A CIP allows me that. One of the concerns that the FSA has highlighted about treating customers fairly is that different clients were getting different outcomes, because individual advisers from the same firm were doing different things. It is quite contradictory.”

Examples of good and poor practice from the FSA thematic review on CIPs and replacement business

Good practice

One firm used feedback from its clients and identified it only required a simple, low-cost CIP. It used this feedback to design and implement a CIP that provided an ongoing review service at a cost that was lower than the market average.

Several firms carried out a review of their clients’ typical needs and formulated a list of key requirements before tendering for a third-party CIP provider.

One firm placed a limit on the additional cost of replacement business at 0.5 per cent per annum. Recommendations could only exceed this limit in exceptional circumstances after a discussion with, and approval by, the advice manager.

Poor practice

Several firms inherited CIP solutions following mergers or acquisitions and failed to undertake any assessment to establish whether the CIP was suitable for the needs and objectives of their new, bigger client bank.

One firm outsourced the management of its CIP to a discretionary fund manager. The advisory firm did not arrange for its clients to have a contractual relationship with the DFM and neither did it hold the permissions to manage client investments. By managing the assets within the CIP on a discretionary basis, the firm was operating outside its scope of permissions.

Several firms had not clearly defined what level of additional costs they considered acceptable for their clients. As a result, their file reviewers were not consistent on when recommendations that imposed additional costs were justified.

Advisers’ reaction

Have your say at

“Under 4.9 in the document it gives an example of a firm that has clients in model portfolios run by a DFM where there is no contract with the manager. The FSA is saying that if the IFA does not have discretionary permissions then this is outside the rules/scope of permissions. Aren’t a lot of IFAs operating exactly this model, often promoted to them by platforms and the discretionary running the portfolio? If it is wrong, who is taking the blame?”

Norman Masdik

“This is fundamental stuff. Any firm running DFM/model portfolios based purely on commerciality and profit is going to have problems like the ones highlighted. There is no problem with the principle of CIPs but they must be properly thought through and focused on what is important.”

Ian Coley



FSA staff exodus gathers pace

The FSA has seen a 30 per cent surge in the number of staff leaving ahead of the new twin peaks regulatory model, with 430 permanent employees quitting last year. A freedom of information request, submitted by Money Marketing, shows the number of staff leaving the FSA rose from 330 in 2010 to 430 in […]


Decide2 uses Cofunds and 7IM for ‘assisted non-advised’ service

Mass-market advice provider Decide2 is developing an “assisted non-advised process” that will be run off the Cofunds platform and use model portfolios from Seven Investment Management. Decide2, which is led by former Aegon Direct chief executive James Dean, launched at the beginning of this year to offer online and phone-based advice to the mass market. […]

Citi shareholders reject board pay plan

Citigroup shareholders have rejected a pay plan which promised tens of millions of dollars to its chief executive Vikram Pandit and its directors. Around 55 per cent of shareholders voted against the plan or abstained at Citi’s annual meeting in a non-binding vote. The Financial Times reports that Citi is the first big US bank […]

Budget summary – March 2016

This week’s Budget looked as if it would be a difficult one for the Chancellor, with disappointing economic numbers and the need to avoid ruffling feathers ahead of June’s in/out referendum. Nevertheless, Mr Osborne did spring a few surprises, including some tax reductions. So how does this budget affect you? If you are – or […]


News and expert analysis straight to your inbox

Sign up


There are 3 comments at the moment, we would love to hear your opinion too.

  1. CIP? Where have I been?

  2. @Steve

    Centralised Investment Process / Propositions. As in FSA document GC12/06:

  3. Richard Whitaker 17th April 2012 at 9:33 am

    I know a KIP is what the FSA were doing while the banks were stuffing their balances sheets with US Toxic debt a paying their experts bonuses for doing this!

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm