Suitability Issues of Centralised Investment and Retirement Propositions

January 9, 2023


Globally recognised expert in applied decision science, behavioural finance, and financial wellbeing, as well as a specialist in both the theory and practice of risk profiling. He started the banking world’s first behavioural finance team as Head of Behavioural-Quant Finance at Barclays, which he built and led for a decade from 2006.

Suitability Issues of Centralised Investment and Retirement Propositions

Centralised investment and retirement propositions can enhance client outcomes through streamlining advisory services. However, they also come with inherent dangers of prioritising a consistent product over a consistent approach for dealing with individual differences.

The role of suitability in CIPs and CRPs

Centralised Investment Propositions (CIPs) and Centralised Retirement Propositions (CRPs) have increased in popularity, partly because they make the advice process more efficient, and – hopefully – by extension, more cost-effective for both advisers and clients.

With increased popularity comes increased attention from the regulator. There’s no regulatory requirement to have a CIP or a CRP, but being the foundation of so much advice, they’re in the spotlight of the rules that govern that advice.

Centralisation of a proposition is about consistency. From a suitability standpoint, consistency is a double-edged sword: subjecting all clients to a consistent process is welcome; delivering them all the same product is not.

A centralised proposition isn’t a ‘product’ per se, but as far as the regulations are concerned, if clients are in danger of being shoe-horned into a set of rules that don’t adequately account for their individual circumstances, the effect is the same.

Because regulations are about client outcomes, not products, while the client needs served by CIPs and CRPs are different, the regulatory needs are not. Three key themes unite them:

  1. Focus on the outcome for each individual client – The key to all suitability regulation is that investments are suitable for an investor, considering their individual financial and psychological circumstances. This is especially important in the context of centralised propositions. In the FCA’s words: “consider the suitability of advice for clients on an individual basis – don't ‘shoehorn’ clients into the CIP.”
  2. Ensure any centralised proposition sits within a robust process – Centralisation can bolster the robustness of a process, because it reduces the number of moving parts. This is especially useful in a retirement proposition, where the additional complexity increases servicing costs (and where clients whose fee is paid as a percentage of AUM could find their fee incentive increasingly misaligned with their advice requirements). A centralised proposition is not the process itself, but must sit, in the FCA’s words, within a ‘system to mitigate risks which might arise from the specific characteristics of a CIP’ – namely within a process that protects each client’s individuality from being masked by centralisation.
  3. Evidence everything! – Advisers are often in more danger of being tripped up by regulations not because they haven’t done something well, but because they cannot evidence how well they’ve done it. The more attention is paid to harder-to-quantify individual client behaviours, the more important this becomes. The FCA specifically highlights the situation of an inherited client book. Ticking every ‘know your client’ box, and thorough due diligence on the centralised proposition is not the same as evidencing how a firm’s existing CIP is suitable for each client.

Best practice suitability for CIPs and CRPs

The key to making the most of CIPs and CRPs lies in applying these core principles throughout a comprehensive behavioural suitability process.

Suitable risk level

A suitable risk level for a client, whether they are accumulating or decumulating, is derived from combining Risk Tolerance with Risk Capacity. In a CRP especially, Risk Capacity (accounting for a client’s overall financial situation and lifestyle goals) comes to the fore, because non-investment assets (and, where there is a greater reliance on investment assets, investment risks) play a greater role in retirement planning. The FCA specifically highlights the need to consider a client’s financial objectives and financial situation when using a centralised proposition, because of the increased danger of these being overlooked if a client is shoe-horned into a pre-set solution.

Vulnerability (including Knowledge and Experience)

A process for identifying client vulnerabilities is especially important for CRPs. There are many potential drivers of vulnerability, including health, major life events (e.g. death and divorce), financial knowledge, ability to withstand financial losses, and certain behavioural tendencies.


Client segmentation is welcomed by the regulations, because it encourages a better understanding of clients as people, to better match them to suitable investments, and to a suitable service level – including the use of centralised propositions.

In the FCA’s words: ‘A CIP will not be suitable for all clients. Even when a firm conducts adequate due diligence and designs its CIP to meet the needs and objectives of its target clients, a firm must take reasonable steps to ensure a personal recommendation is suitable for each client.’

Segmentation is typically based on assets, or perhaps suitable risk levels. However, a more well-rounded, client-centric segmentation process incorporates an understanding of behaviours, and how they affect the timing and content of client communications.


Mapping investor suitable risk levels to investment risk levels – and of course having an evidenced methodology for doing so, beyond a blind leap from a Risk Tolerance score to a model portfolio number – is crucial for any centralised proposition. In the FCA’s words: ‘Where a firm creates or uses risk-rated portfolios as part of its CIP, it must ensure the portfolios align accurately with the risk descriptions and outputs from any risk profiling tool it employs. It is the responsibility of the firm to ensure this alignment. Where there is a mis-alignment, there is a risk of systemic mis-selling.’

Centralisation is about consistency of process, not product

The key point to remember when dealing with CIPs and CRPs is that while centralised propositions are about encouraging consistency, this should be consistency of process, not consistency of an end product.

A centralised proposition should sit within a robust process. A process that evidences: a) understanding an investor (including their Risk Tolerance, Risk Capacity, potential sources of vulnerability, and relevant behavioural traits and tendencies); b) matching them to suitable investments; and c) monitoring and updating that understanding and matching as necessary throughout the investor journey.

How can Oxford Risk help?

As well as analysing a client’s personal financial circumstances, Oxford Risk’s Financial Personality Assessment measures investors on 20 different dimensions (along with a further six sustainable-investing preferences), giving wealth managers and financial advisers the most robust insight possible into an individual’s financial and emotional capacity.

Please click here to learn more about how Oxford Risk’s risk suitability solutions can support better client outcomes as part of your Centralised Investment or Retirement Proposition.

Further reading:

FCA overview:

FCA guidance:

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