CUSTOMER AGREED REMUNERATION - CRA International

REPORT BY CRA INTERNATIONAL
premium products that would not naturally move towards a CAR basis for the same
reason.
Hence, regular premium products are likely to result in the advice charge being paid over
time introducing issues to do with whether consumers or advisers are liable for the cost of
advice if the consumer lapses and introducing the opportunity for factoring. Although this
may be necessary, consumers are suspicious of factoring and this will be a barrier to
increasing trust.
Evidence regarding provider bias
Previous research by CRA found that provider bias is most problematic for single premium
products. The first study undertaken for the FSA in 2002, found that although commission
bias was not prevalent across the whole market there were areas of concern, in particular
there was evidence of provider bias for single premiums products. Consistent results were
found in the later research conducted in 2005 and 2007.
4.3 Summary of the scope of CAR
Given the differences between the channels and the reaction of consumers, the benefits
of applying CAR to the tied segment appear relatively small. We therefore do not
recommend making it compulsory to use CAR in the tied channel. Instead, providers
could be encouraged to ensure the incentives faced by tied advisers remove any potential
for product bias.
Currently, the great majority of retail investment products are structured as single
premiums. However, given the potential for substitution between regular and single
premiums, our evidence supports the application of CAR to all retail investment products
irrespective of the premium type. The difficulty of applying CAR to small regular premium
products without factoring, however, suggests that caution is required regarding the
potential application to protection products.
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