CAR (Customer Agreed Remuneration)

So, Zurich have conducted a survey of 910 advisers where, apparently, 60% have said that they would adopt CAR (a key proposal in the FSA's Retail Distribution Review) provided that it included financial incentives and commission offsetting.  Ten percent of these advisers said that they'd rather leave the industry than embrace the concept of CAR.

This issue is beginning to become something of a big yawn.  Firstly, for financial advisers to be prepared to leave the profession, rather than adopt CAR probably says more about them, than the somewhat mixed picture presented by the FSA's proposals.  The principles underpinning the whole idea of CAR are ethical and transparent, and could well lead to a far more professional approach to adviser remuneration, irrespective of whether we choose to persist with a commission model, or (heaven forbid) move towards a fee-basis.

Secondly, the FSA's proposals are only (at the present time) just that.  Proposals.  The RDR is one big brainstorming document, to elicit responses from the industry.  Given that a number of product providers have already indicated that (in its current format) CAR may be too expensive to implement, who knows what we will end up with?  One is reminded of all the outraged whinging from advisers when commission disclosure came in.  That was a storm in a teacup.

Thirdly, for 60% of advisers to express positive views about CAR, providing that they are bribed to adopt it, does appear to miss the point.  Good practice in this area will enable professional firms to distinguish themselves in a competitive market.  It would seem to me that it would be far more beneficial to see some kind of regulatory dividend emerge for firms which are realistic and utterly transparent in this area - and we hope that what emerges from the RDR will demonstrate that the FSA is able to ameliorate the punitive impact of its regulatory overheads on such firms.

Fourthly, CAR is only a further evolution of the kind of practical framework that we have been commending to our Members since 2005.  There may be a few more tweaks to the final model, but 2020 Financial Services' Members are already in an excellent position to make the changes.  Indeed, we are already in the process of launching our 'Best Practice Platform' which includes a prototype CAR methodology, aimed at enabling firms to continue to migrate to fee-based advice, whilst at the same time minimising risks to their revenues.

Whilst we have some reservations about the content of the FSA's RDR, and certainly in respect of some of the debatable assumptions underpinning parts of it, we remain entirely positive about the ability of our Membership to keep one step ahead, in order to develop cutting edge financial-planning propositions.