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Aifa issues first RDR paper to advisers defining CAR

Aifa has issued its first paper on the retail distribution review, entitled RDR Issues Paper 1: Commission and Customer Agreed Remuneration.

The paper sets out the facts surrounding the FSA’s remuneration proposals for advisers, including the possible introduction of CAR and a potential ban on commission for professional financial planners.

Deputy director general Fay Goddard says: “The RDR introduces CAR as an alternative to commission, aimed at removing the perceived stigma of commission and the current disinclination of consumers to paying fees.

“There has been some confusion and misunderstanding over what CAR actually is, or could be. We will be consulting members shortly to assess the appetite for CAR and whether or how it sits alongside commission.”

Aifa says the key points to consider are that the FSA is not proposing to ban commission, that the proposal is to disallow commission in the PFP category only and that commission on lump sum payments can be called CAR if agreed with the client up front.

It also highlights that indemnity commission on regular investments can be treated as CAR provided the amount of “commission” is agreed up front, while fee-based firms using commission offset can adapt to CAR.

Aifa says in practice CAR means there will not be any need to deal with any under or over payment of commission, such as rebating, product enhancement or requesting any balance of an agreed fee.

Goddard says: “Most important of all is whether clients will understand and engage with the concept or simply be put off taking advice. Realistically, we do not expect clients to engage in bilateral negotiations to agree a fee. As with any other profession, the scale or rate of fees should be set by the firm, discussed and clearly disclosed at the outset.”

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