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Banks will dominate if CARIS is introduced

The Retail Distribution Review discussion paper is likely to call for Customer Agreed Remuneration which could see greater consolidation in the intermediary market and greater dominance of the banks, according to Accenture.

In Accenture’s response to the FSA’s RDR seen by Money Marketing, the consultancy firm says it expects the discussion paper to recommend reforms that will take the provision of intermediary remuneration away from providers.

It suggests two types of remuneration model – fee-based and fund-based -but says the more popular approach among advisers is likely to be fund-based remuneration because of the disproportionate impact of fees on the value of smaller initial investments under a fee-based structure.

Accenture has also predicted that a potential consequence of CAR – or what the ABI terms CARIS – would be to make the mass market more unattractive to advisers.

This middle market space would be taken over by the banks which would operate what Accenture calls a ‘guided sale’ as it is based on the provision of information, rather than regulated advice.

It suggests that a guided sales process using generic decision trees could provide decisions appropriate for most people while identifying people with more complex needs and directing them to full advice channels.

Accenture says the introduction of the CAR system would allow for bancassurance to “seize significant market share” in the mass market.

The response says: “Under a ‘guided sales’ regime, the bancassurance channel will grow within the mass market. Banks are ideally suited to the middle market space and are arguably best placed to fill the gap that would be left by advisers.”

Accenture predicts that access to distribution will become more restricted as a result of consolidation and providers will need to compete harder to secure distribution.

It notes that providers will play a key role in the consolidation and capitalisation of intermediaries and expects individual advisers and smaller firms to join existing provider-owned businesses in the future.

Accenture says that under principles-based regulation it would be difficult for providers and distributors to judge the misselling risk of their sales processes.

It therefore suggests that the FSA would need to take a more active position, by reviewing proposals from providers and providing clear guidance on whether they are acceptable.

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