CUSTOMER AGREED REMUNERATION - CRA International

REPORT BY CRA INTERNATIONAL
advisers. Our research found that 5% of existing customers would invest more money
and 15% would visit their adviser more often.
Among non-purchasers (those who have not purchased financial products through a
financial adviser), although 37% agree that CAR would increase the likelihood that
they would use an adviser, as they would only become aware of this when using a
financial adviser and only 10% had previously stated that they had not used an
adviser before because they did not trust them. For this reason we do not assume that
there will be an increase in demand from non-purchasers in the short-term, although it
may increase demand in the medium-term.
There is, however, a risk that the greater transparency will lead a group of consumers
to take advice but then choose to purchase directly from the provider. Intermediaries
may need to make changes to the way they charge for advice to counter such
challenges. Other consumers believe that providers will find ways to continue to
influence their intermediary, for example by offering factoring arrangements.
What would be the impact of CAR on the supply of advice?
One of the issues regarding the introduction of CAR is that it could reduce the potential
for cross-subsidies between different consumers if the greater transparency leads
clients to negotiate. This could result in consumers with a smaller amount to invest
finding it more difficult to access advice as supply is withdrawn from this segment.
There are a number of reasons to be slightly sceptical regarding the size of the effect
of cross-subsidies. Firstly, advisers could already choose not to service these
consumers today and this would increase their profitability. Secondly, price
discrimination already occurs through active consumers requesting rebates, although
CAR will encourage a further move in this direction. Thirdly, advisers already
differentiate between clients and consumers, with clients seen as being in a long-term
relationship (that may not be economic in the short-term but will be over the longer
term).
However, CAR is unlikely to reverse the trend for IFAs to serve fewer lower value
clients although this may be partly offset by clients being more confident in the
industry and less resistant to purchasing in the first place.
CAR could influence the role of nationals, networks and service providers, so that they
focus on using their bargaining power to negotiate better terms on product pricing for
the consumer and use this to market their services to consumers.
Which product and intermediaries should be included within the CAR
model?
Without additional encouragement, the use of CAR will grow but will only be used in
certain market niches. In particular, it is unlikely that there will be significant use of
CAR by nationals and networks or tied advisers. Although providers will increasingly
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