CUSTOMER AGREED REMUNERATION - CRA International

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INTRODUCTION
CUSTOMER AGREED REMUNERATION
CRA International (CRA) was asked by the ABI to test the impact of the use of Customer
Agreed Remuneration (CAR) as a method for determining intermediary remuneration for
financial advice. The project was conducted in the light of proposals made in the FSA’s
Retail Distribution Review (RDR) regarding possible changes to intermediary regulation. 3
This research report draws on original consumer, intermediary and provider research to
consider the following questions:
1. What would be the impact of CAR on the demand for advice?
2. What would be the impact of CAR on the supply of advice?
3. Which products and intermediaries should be included within the CAR model?
4. Do the benefits of moving to CAR outweigh the costs?
5. Over what time period should CAR be introduced?
The report is structured around these five questions.
The definition of CAR
In order to investigate the impact of introducing CAR it was necessary to define some of
its characteristics. For the purposes of this project we explained CAR as having
implications for both the product and for the process by which advice was given. 4 For
remuneration to be consistent with CAR we have assumed that it is necessary that:
• The cost of advice will be separated out from the cost of the product:
o One part covering the cost of the product; and
o One part covering the cost of the advice.
• The cost of the advice will be explained by the adviser at the beginning of the
process and agreed by the customer.
• Providers would not pay commission to advisers (but may facilitate payment for
advice on behalf of the client).
• The amount consumers pay for the product would be lower because commission is
not being paid.
• If a product is purchased, consumers will pay separately for advice. This will be:
o Either in a single payment at the start;
o Or as an additional charge over time on the product.
3 Financial Services Authority (2007), A Review of Retail Distribution, Discussion Paper 07/1. As is common
market practice, we refer to this as the Retail Distribution Review or RDR.
4 As set out in the RDR, CAR should be seen not as a different remuneration model but as a different way of
determining remuneration.
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