Last summer, the Which? Future of Banking Commission report made a number of sensible recommendations to try and improve the continued poor standards of bank advisers.
In an evidence session earlier that year, FSA chief executive Hector Sants pledged to the commission that the regulator would get tough on banks who offer their customers poor investment advice through better supervision and more effective enforcement to deter bad behaviour.
Reading the all too familiar latest mystery shopping research from Which? it seems the FSA is being anything but rigorous in its policing of the sector, whilst the senior management of banks and building societies appear unafraid of the regulator’s threats.
The charge sheet is the same as usual- blanket poor behaviour across the major banks and building societies surveyed. Older, inexperienced investors persuaded to invest the majority of their assets into inflexible products which pay high commission to the bank salesman.
It is unlikely there is a sea of rogue bank advisers, disobeying their employers on the hunt for these high commissions. They are doing the job as they were trained to do. Rather than pointing fingers at the branch advisers it is the senior management that must take the blame for these continued failings.
As the Future of Banking Commission suggested, the only way to change behaviour is to make the senior management personally accountable for the type of culture they allow to develop in their organisations.
When Barclays was fined £7.7m earlier this year for advice failings related to the sale of Aviva funds, the FSA suggested the bank may have to pay up to £42m to compensate investors after selling the funds to over 12,000 people investing nearly £700m. This was not an isolated case of individual misselling yet no senior management were personally banned or fined for their part in the scandal.
In October, Credit Suisse UK was fined nearly £6m for the misselling of structured products by its private bank advisers. The regulator found serious failings in the bank’s systems and controls, including inadequate assessments of customers’ attitudes to risk.
The final notice reveals the bank’s management failed to properly use an evidencing tool which was supposed to review the suitability of transactions. Management reviews were sub-standard in 44 per cent of cases. No senior management have so far been held publicly accountable by the FSA.
Earlier this month, the FSA fined Coutts £6.3m for a string of failings in connection with the sale of the AIG enhanced variable rate fund by its advisers totalling £1.45bn.
The FSA says there were a number of serious failings in the way Coutts sold the fund, including not having an adequate sales process in place and poor training. Again, so far, no senior management have been punished for the failings.
Compare this to the treatment of former Park Row chief executive Peter Sprung, who was personally fined and banned as part of the FSA’s response to misselling at the firm.
The retail distribution review should end the current type of huge commissions earned by bank advisers, but as a recent Money Marketing investigation revealed, there are concerns about how the FSA will police adviser charging with respect to tied advice.
It is also less than clear how it will improve the internal sales culture and pressures that generate such poor advice.
If the FSA really wants to deter banks from misselling it needs to send senior management teams a clear message that they will be held personally accountable for the behaviour of those carrying out their orders in the branches.
Paul McMillan is the editor of Money Marketing- follow him on twitter here