CUSTOMER AGREED REMUNERATION - CRA International

REPORT BY CRA INTERNATIONAL
4.0
4.1
SCOPE OF CAR
At this stage, there are a wide variety of options regarding the way that CAR could be
developed. Indeed, the ABI asked us to consider a range of scenarios including:
• The application of CAR to only the IFA channel or whether it should also be applied
to multi-tied and tied advisers; and
• The application to particular product types. In the RDR the use of CAR was only
suggested for retail investment products but we were asked to consider if it should
also be applied to protection products.
Before considering the scope of where CAR should apply, we examine trends in
remuneration to understand whether these address the problems in the market and
whether advisers are already using approaches consistent with the CAR model or will do
so in the future.
Ongoing trends in remuneration and the use of CAR
It is possible that the problems associated to current commission structures are resolved
by increased use of other forms of remuneration e.g. fees. Few intermediaries believe
that payment by fees or trail commission will decrease but a significant percentage
believe that they will continue to grow, as shown in Figure 11 below. Network members
are the least convinced that fees will increase.
Figure 11 Percentage of IFAs reporting that they expect an increase in
% of IFAs reporting increase over the next 3 years
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
remuneration by category over next 3 years (even in absence of
changes from RDR)
Independent IFA (nonnetwork)
National Financial Adviser
(IFA) firm
Network member IFA All IFAs
Fees using commission offset Fees without commission offset
Initial commission/related to premium Trail commission/related to FUM
Source: CRA International based on survey of 101 intermediaries conducted by ORC International.
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