CompaniesMay 7 2013

Advisers should adopt CIPs to combat income drop

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ByDonia O’Loughlin

Bristol-based Parmenion has called on advisers to adopt centralised investment propositions to help counter the likely reduction in adviser profitability the platform rebate ban will have on some traditional income revenue streams.

From April 2014, any adviser working with clients in legacy investments will have to agree arrangements which meet the adviser charging rules. Cash rebates from fund providers to advisers and platforms will end altogether in 2016, and this will turn off the trail income traditionally received on these products.

Investment solutions specialist Parmenion has warned advisers not to delay in restructuring their business models to comply with the Financial Conduct Authority’s platform rebate ban.

Richard Mein, managing partner and founder of investment solutions specialist Parmenion, claims that advisers are failing to implement propositions which handle the upcoming changes and preserve the value in their existing relationships.

He said that only modern CIPs offer the scalability to allow advisers to operate profitably at post-RDR pricing, whether their firm has £10m or £10bn under management.

The FCA wishes to restrict the influence of product providers and platforms on the promotion of funds, to ensure that fund selection is based on the professional judgement of advisers and paid for on a basis agreed with their clients. It will be the responsibility of advisers to also ensure that the platforms they use present and offer funds without bias.

Mr Mein said: “It’s imperative that advisers re-address their clients’ needs across the board in order to retain their income stream. This is done most effectively if the investment proposition is elevated above the level of fund selection to that of portfolio construction, with a built in risk mandate agreed with their client, integrated rebalancing to asset allocations, professional investment management and at a cost advantage to the investor. A modern CIP addresses all these requirements.

“Enormous pressure has been placed on advisers by the introduction of the Retail Distribution Review and this will continue under the new regime. The FCA understandably wants to ensure that we treat clients fairly through consistency of outcomes and a CIP enables advisors to achieve this”.