CUSTOMER AGREED REMUNERATION - CRA International

EXECUTIVE SUMMARY
CUSTOMER AGREED REMUNERATION
CRA International (CRA) was asked by the ABI to conduct research into the market
impact of encouraging Customer Agreed Remuneration (CAR) as a method for
determining intermediary remuneration for financial advice. The objective was to
assess its impact on actual or perceived bias resulting from the current remuneration
models, and whether it encourages additional saving and greater provision of advice.
To achieve this objective CRA, in collaboration with ORC International, has researched
the reaction of consumers, intermediaries and providers to the CAR model:
• To understand the reaction to and understanding of CAR, eight focus groups
were undertaken with both current and potential consumers. This was used to
design a face to face quantitative survey of 300 consumers to estimate the
extent to which consumers would react positively to the CAR model.
• The reaction of intermediaries was tested through 18 detailed interviews with
different types of intermediary (including nationals, networks and individual IFAs
and multi-ties), this was followed by a telephone survey of 100 IFAs and whole
of market advisers. A questionnaire was sent out to establish high level
compliance costs.
• Interviews were undertaken with providers already offering CAR style products
and providers who were thinking about developing these in the future (15
interviews were conducted in total). A compliance cost questionnaire was also
sent to providers.
What would be the impact of CAR on the demand for advice?
The CAR model is likely to increase demand for financial advice and products. For this
to occur it is important that it is explained in a way that is understood by consumers.
This should raise consumer confidence in the industry.
Evidence from consumers and intermediaries that have adopted CAR style models is
that consumers understand and value the greater transparency it brings. However, at
present it is primarily used for higher net worth and more sophisticated consumers
who are not typical of the market as a whole. Survey evidence suggests that the
majority of consumers find the concept straightforward to understand. It would
remove the perception that advice is free and prompt consumers to ask their adviser
what services they are receiving for the advice charge.
There is evidence that consumers value the transparency of a separate advice and
manufacturer charge and this would contribute to raising the degree of trust that
consumers feel towards the industry and financial advisers in general. It is difficult to
quantify the benefits that would result from this, but it could result in an increase in
demand as customers would be more likely to follow the recommendations of their
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