CUSTOMER AGREED REMUNERATION - CRA International

4.1.1
CUSTOMER AGREED REMUNERATION
These results are consistent with interviews where IFAs report that there is pressure to
increase the percentage of their remuneration paid on an ongoing basis. This results
from:
• A desire to build value in their business, so they can sell the business when they
retire; and
• Pressure from shareholders in businesses that have been acquired.
This has resulted in internal changes within intermediary businesses to encourage this
transition, for example, rewarding advisers in their remuneration for trail commission,
where this was not previously the case.
However, based on the slow speed of change in the structure of remuneration to date, a
large change in the composition of remuneration is unlikely to occur quickly.
The use of CAR products in the market today and in the future
In order to understand the products on the market today it is useful to set out the
terminology that is currently used. The great majority of providers offering packaged
investment products state that they offer “Factory Gate Pricing” (FGP). However, the
definition of FGP can vary quite significantly from provider to provider. In particular there
are differences regarding:
• Whether this involves a net manufacturer price being disclosed;
• Whether there is complete flexibility to use any form of charges for advice or
whether flexibility is provided through a choice of different commission options; and
• The involvement of the consumer and the resulting disclosure to the client.
The definition of CAR that we set out in section 1.1 indicates that CAR requires the
intermediary, rather than the provider, to set the cost of advice and for this to be agreed
by the customer. Hence all CAR products would be considered to be FGP products but not
all FGP products would necessarily be consistent with CAR.
According to interviews with providers, the development of FGP products has been taking
place over the last ten years but has accelerated considerably over the last two years.
Providers have introduced FGP for different product categories and have adopted different
strategies regarding the use of commission loaded products. Some providers have
phased out the use of commission loaded products (or are aiming to do so) in order to
only offer FGP products, other providers have chosen to run two parallel products, and yet
others are favouring the FGP product but retaining their existing products as well.
However, all providers have focused their initial effort on large single premium products
and, when launching FGP products, have tended to target the existing fee based market
as the easiest part of the market to penetrate with these products. Only once the product
has been accepted in this segment have providers generally widened the group of
intermediaries to whom they are marketing.
33