We are seeing an increase in the number of advisers who believe that a centralised retirement proposition (CRP) is more than just the latest retirement buzz word. Despite this there still appears to be no universal definition of what a centralised retirement proposition (CRP) actually is.
This isn’t just an income-based CIP
A starting point for some may be to take a centralised investment proposition (CIP) approach used for accumulation clients and then swap the investment solution to a more income-orientated investment strategy. However, I’d argue that CRP’s need to go much further than just being a CIP for retirement clients. In fact, I actually believe that it’s less about the investment component in a CRP and more about the overall robust framework being put in place to provide retirement planning advice to your retirement clients.
Client segmentation strategies are also a key consideration here as retirement clients are likely to have very different objectives with very different needs. For example, there are those clients for whom income in retirement is an additional luxury and there are those who rely on income and are more concerned about sustainability to highlight just a few.
A framework for providing retirement planning advice
Obviously, a robust retirement framework needs to include an investment strategy and serious consideration should be given to how you to meet the evolving needs of your different retirement clients. In all likelihood this probably means differentiating your investment strategy for accumulation and retirement clients. But the investment strategy is only the tip of the iceberg within a CRP framework.
That’s because the CRP needs to encompass the whole process in providing retirement planning. For example, adopted processes for fact-finding, assessing your retirement clients’ attitude to risk and capacity for loss as well as managing other retirement considerations such as sequencing risk, income withdrawal rates, longevity and income sustainability. In addition to all that, a CRP framework should also take into the account the retirement product being used. When you take all this into account, it becomes apparent that a CRP is much broader and very different to a CIP approach.
In this context, you may already have a robust CRP in place without actually realising it. If not, I’d strongly encourage you to think about any gaps you might have because building out a robust process can help you manage all of those inter-connected retirement issues and challenges as well as addressing certain regulatory concerns which we’ll take a look at in the next instalment of this series.
A CRP can deliver similar benefits to a CIP in terms of consistency and efficiency but the real benefit is using the whole framework to help clients plan for a sustainable retirement. As we all know all too well, clients’ needs vary considerably in retirement and having a CRP in place, with more in-built flexibility relative to a CIP, can help you continue to meet those evolving needs in a more efficient manner.
When you put it all like that, it’s hard to disagree with the view that a CRP approach can take retirement planning to a more robust level.
Next up in this series, I take a look at the rise in adviser usage of CRPs.