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Bank advice misselling won’t stop until senior staff are punished

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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

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Readers' comments (30)

  • Great article but we all know nothing will ever happen.....Why ... I leave that to your imagination!!!

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  • Another approach would be to fine them the level of commission they earned on the mis-selling.

    If their profits are wiped out they will either pull out of the market or up their game.

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  • Good article, but hardly rocket science.

    The problem is, the FSA have their eye on a good job with a bank when they have finished messing up the UK financial system. They probably, like Hector, came from there anyway.

    Senior staff walk away with their big bonuses whatever goes wrong - who ever heard of them being clawed back?

    In a way, however, the same sytem prevails at the regulator too.

    The PPI scandal says it all - £billions mis sold and nobody - NOBODY - senior lost a penny.

    It is effectively a corrupt system.

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  • The last paragraph is a good summary but it will never happen

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  • Accountability! How does an organisation who are accountable to no one, put such an ethos across?Never going to happen!

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  • I was a tied FA with LTSB for many years, I left some years back as was fed up of high pressure placed upon me to sell financial products that were more in the banks favour than the clients. I moved to selling new cars as a stop gap and it was refreshing to be matching needs to products for a change ! These findings are of no surprise to me.

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  • The FSA should undertake (yet another) review and force the banks to write to every client who has been sold a bond/ investment that is paying say more than 3% on an investment to confirm exactly how much commission was paid to the bank to the penny and an invitation to confirm that they were happy to pay this from their investment.

    You are absolutely right Paul. This is not down to maverick salesman but rather sales practices that many were forced to follow by senior management. This needs to be raised in the wider press.

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  • I totally agree with your conclusion Paul. This type of practice has been happening for years. In my opinion the main catalyst for poor advice in the large institutions is the way the management target and reward staff. It is not that the staff have bad intentions or that they have insufficient knowledge, it is that they are badly monitored and managed. In place of hands on management the company finds it more cost effective & profitable to set targets to the counter staff for numbers of referals and targets to the advisers for numbers of appointments, conversions and sales. If they don't hit their targets they are subjected to unpleasant management pressure. The whole business model is more about making a profit from a "revolving door" than it is about having a sustainable business with ongoing client service and retaining those clients and their investments on the book. It is nothing short of scandalous that these companies have been getting away with taking large commissions for scant advice (mostly just implementation & a template suitability letter - not advice) and taking trail commissions but not delivering an ongoing service rather moving on to the next hot prospect who happens to have a large amount in their current account. They must be getting short of apppointments because I now reguarly get approached by my bank when my current account goes over £5,000. Whilst this is too little for most IFA's to warrant the full advice process it is obviously enough for the bank to make a profit on - but only if they do enough of them and dont spend too much time and trouble investigating the suitability in the context of the clients full financial circumstances. I can't see this getting any better when they move to a restricted advice model.

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  • Totally agree with the article. My Son works for one of the high street banks, selling loans, credit cards and general insurance. He tells me the pressure placed upon them is almost unbearable. Can you imagine having to come out of your own meeting with a customer at 11.00am for 5 minutes because you have to tell your bank manager what sales you have done so far today? They have to do a similar exercise in the afternoon.

    It reminds me of selling timeshare abroad and a bell rings when somebody buys one.

    And they wonder why there is miss selling.

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  • I took a moral stand in 1990 & left the Banking Industry as the pay structure & career path was purely focused on your ability to hit sales targets! Who knows if I am doing better or worse as an IFA but I can sleep at night in the knowledge that I am providing a repeat service to my clients and their referrals!

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