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CAR trouble

A short while ago, I bumped into an old acquaintance of mine who asked if I was interested in some freelance writing work. Unfortunately, my full-time job meant that this was not possible anyway but, just out of interest, I asked how much he was he prepared to pay.

My old pal quoted an amount which was less than he used to get 10 years ago when I commissioned a series of articles from him for the personal finance section of The Independent, itself not one of the newspaper industry’s most generous payers, and, in his case, the number of words he had to write was significantly less.

When I pointed this out to him, he had the grace to be vaguely shame-faced about it but not so much that he was prepared to increase the rate to something worth barely more than the mini-mum wage.

Needless to say, I wished him luck in finding a suitable writer for his project. I am sure that he has found one. In every industry, be it media or financial services, there will always be people who believe that the best way forward in business is to undercut the oppo-sition rather than insist on a “proper rate for the job”.

That experience, however, led me to read Julian Stevens’ recent letter in Money Marketing with an even keener eye than usual. Julian, a partner at Harvest IFM in Bristol, whose contributions to Money Marketing always make for interesting reading, was explaining how the concept of customeragreed remuneration caught him on the hop.

In a meeting with his client, Julian was pressured into accepting a rate for the job which was less than the cost to him of running his business effectively so when he got back to the office, Julian wrote to the client saying that he did not wish to transact this item of business.

I suspect that most advisers reading Julian’s letter would have felt enormous sympathy with his situation. Given that the issue is such a juicy one, I was not too surprised when last week he received a reply to his conundrum, in this instance from Nick Bamford at Informed Choice.

Nick argued that, contrary to Julian’s approach, “the emphasis is on what we do for the client – the added value we bring – rather than what it costs us to do it”.

He also disagreed that CAR is meant to deliver the same level of remuneration, in whatever form it takes, as the amount that might otherwise be chargeable as a fee. That approach simply replaces “commission levels determined by the product provider with commission determined by the adviser”.

Rather, it is: “CAR is simply a method of telling the client explicitly that they have to pay for professional advice and implementation services and giving them a choice about how it is paid for.”

In that kind of situation, the discussion with a client is less about the “right” fee for the job and more about the quality of service that he or she has a right to expect for the fee in question. In turn, that means showing that the fee in question will produce a range of tangible benefits for the client.

Now, I do not have a problem with that approach necessarily. I can see how in the case of an Informed Choice client, the fee, whatever it is, would be justified by the right level of service.

Even in Julian’s case, given his own level of professionalism, I do not think there is anything necessarily wrong with aligning commission-based remuneration with fee income. After all, if quality is a given, the issue is that of how much a client should pay for it.

The problem, however, is that most IFAs do not work like that. My conversations with advisers in recent months suggests that CAR is increasingly being seen as the successor to the old menu system, in which clients are given an idea of what a particular service is likely to cost and then, as if by magic, always end up choosing commission as the way to pay for it.

Indeed, there are echoes of this approach in Nick Bamford’s description of how he sets out to discuss remuneration with his clients. Let’s face it, consumers are rarely likely to be as well informed as the IFAs they talk to.

This means that the IFA’s starting point is not simply that he or she can offer quality service if they chose or are able to, they can also dictate the level of remuneration that a client must pay.

It is a client’s ignorance that will determine customer-agreed remuneration as much as the likely quality of the advice received.

Of course, in the case of Informed Choice, the option is fees and one can be sure that they will get great service from Nick and his team.

But increasingly, I am being drawn to the idea that CAR is turning into something that those who dreamt up the concept never really meant it to be. It is becoming commission by another name.

No wonder Ken Davy, bless him, stirred himself from his Barbadian beach to send in his first letter to Money Marketing in years – in support of CAR. Either that or he has only just taken delivery of his first Blackberry and wanted to try it out. Somehow, I doubt that.

Nic Cicutti can be contacted at


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