CUSTOMER AGREED REMUNERATION - CRA International

REPORT BY CRA INTERNATIONAL
Figure 10 Impact on the use of nationals, networks and service providers
% of intermediaries
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Nationals Network members Non-network/national IFAs
Continue to use a network, national or service provider
Join a network, national or service provider
Would not use a network, national or service provider
Source: CRA International based on survey of 101 intermediaries conducted by ORC International.
Figure 10 shows that the application of CAR could have a significant impact on the
incentive for intermediaries to be a member of a network or national or to use a service
provider. Although based on a small sample, this would suggest that national IFAs are
more likely to consider changing their membership than networks.
Some service providers are already moving away from a model where the price that they
are paid for their services is based on a proportion of the commission earned, and
towards a monthly fee according to the services that they receive. It seems that those
service providers who have acted in this way will be less affected by changes in
remuneration levels or structures caused by CAR.
Alternatively, networks, nationals and service providers could use their bargaining power
to negotiate better terms from the manufacturers for the consumer i.e. lower
manufacturing prices.
In well functioning markets, bargaining power of intermediaries or distributors is used in
order to offer better value products or services to customers. Thus as well as competition
over administration and service, we would expect to see bargaining power leading to
some intermediaries being able to obtain products from providers at lower manufacturing
prices than other intermediaries. Both the lower manufacturing price and the cost of
advice would be disclosed to clients hence, if competition works well, large intermediaries
would be able to use their buying power to the direct advantage of their clients.
Discussions with large intermediaries indicate that this is the direction that competitive
forces would be expected to move. However, interviews with providers indicate
reluctance to offer different products with different underlying prices. In some firms it
appears as though the setting of manufacturing prices is currently undertaken separately
from the negotiation of commission levels with intermediaries and therefore negotiation of
manufacturing prices has not been contemplated in the past.
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