The starting point is to understand what the value is of your FSP’s investment management offering. This requires the advisor to think about how the investment management offering will solve a significant problem that the specific targeted client segment deems to be important. An example could be how the FSP’s investment management offering frees up the client’s time to focus on living their ideal life without worrying about whether their money is invested properly, or maybe the value lies in how the FSP’s investment management approach reduces the uncertainty associated with investment outcomes. The focus of the value proposition is how the investment planning, ongoing management, and review process adds value for the client.
The second component deals with the financial planning philosophy and process. Although the six-step process is universally accepted as a standard approach, the implementation and planning philosophy may differ from one advisor to the next. Some advisors may follow a comprehensive, integrated financial planning approach which will lead to the financial planning process being different from an advisor who follows a single needs approach.
The client discovery may be much more in depth, requiring the advisor to get an understanding of a client’s money habits and money script as opposed to an advisor that does single need type of planning. The tools, instruments and system requirements may be very different. Advisors may also differ in terms of what they deem as fundamental to a client’s financial plan. The principles, rules and assumptions used may be different. An advisor may believe a client should first pay of all their debt before investing, or that no investment should be made for periods shorter than 5 years. Whatever the rules and assumptions, the idea behind the CIP is to ensure that it has been thought through and documented. This will ensure that there is consistency in the planning philosophy and process for all the clients of the FSP.
The third component of the CIP focuses on your investment philosophy and process. As advisors, we require a clear understanding of an asset manager’s investment philosophy and process. We should also have a clear understanding of our investment beliefs, principles, and how we apply them in constructing portfolios for clients. What is your FSP’s philosophy when it comes to principles like: asset allocation, diversification, risk management, or active management?
Advisors also need to have a process in place to construct portfolios. What criteria is used in constructing a portfolio? Does the FSP have a clearly defined mandate for each type of portfolio used in different risk categories? How does the FSP’s advisors determine suitability? These are some of the questions the CIP needs to answer which will demonstrate that a sound investment management process is in place.
This section of the CIP describes the criteria used to evaluate funds, asset managers, DFM’s and LISP’s. Does the FSP use quantitative and qualitative criteria to determine which funds to use? What criteria will be used to switch from one fund to another? What are the principles used in selecting a DFM or a Lisp? These are some of the questions advisors need to be able to answer if a robust, evidence-based process is consistently implemented in managing investments for clients.
It should be noted that the development of a CIP is not a once-off exercise, and the value lies in regularly reviewing the philosophies and processes. That is why it is important to include a description of the governance and who will take accountability for the oversight of the CIP’s implementation. The FSP should review its CIP at least once a year. This will enable the business to continually improve its philosophy, strategy, processes and assumptions which ultimately ensures that a professional investment management proposition is delivered to clients.