Regulation  

CIPs becoming ‘victim of their own success’

CIPs becoming ‘victim of their own success’
 

Centralised investment propositions risk becoming unmanageable, advisers have warned.

Advice firms now spend an average of 71 days a year operating their CIP, according to research from Copia Capital Management.

Some 97 per cent of advisers think CIPs are now at risk of becoming unmanageable.

The research shows that of the 71 days firms spend operating their CIP, monitoring the portfolios takes 15 days, maintenance takes 12 days, and reporting activities takes 31 days.

“CIPs are increasingly becoming a victim of their own success," the report stated.

The report also said the ‘burden’ of these activities tends to increase with scale.

Copia's research said firms with more than £250mn in assets under management spend 40 per cent of additional time over the average on monitoring, 39 per cent more time reporting and 25 per cent more on maintenance.

Firms who outsource portfolio management see a 25 per cent reduction in time spent monitoring their CIP, 72 per cent less time on maintenance activities and a 30 per cent dall in days needed for reporting, the research shows.

The research was carried out for Copia, the investment solutions division of Novia Financial, by the Lang Cat, and surveyed 122 financial advice professionals during January and February this year.

Managing director of Copia Capital Robert Vaudry said the research showed CIPs were "clearly overheating".

“Rather than help support adviser growth, they actually create more work for larger firms," he said, adding: "Precisely when the tipping point is reached is not black and white, but there is obvious concern among advisers that CIPs cannot scale up indefinitely and they become increasingly difficult to manage as a firm grows.”

He added even for smaller firms, new regulations such as Mifid's cost and charges disclosure have made the management of CIPs more challenging. 

According to Vaudry: “With the regulatory bar set to rise further as a result of Consumer Duty and potential ESG requirements, many firms will need to consider whether their CIP is operating as effectively as possible, and if not, what changes might be needed.”

He also highlighted how outsourcing portfolio management can help reduce the administrative burden of CIP management as well as some of the associated operational and compliance risk. 

“But it’s not a universal panacea and not all external fund managers provide the same range of services to help drive efficiencies within your business. 

“When outsourcing to an external investment manager, it’s important to understand the responsibilities of each party and how it will impact your CIP administration", he added.

sally.hickey@ft.com