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

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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There are 30 comments at the moment, we would love to hear your opinion too.

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

  2. 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.

  3. 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.

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

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

  6. 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.

  7. 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.

  8. 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.

  9. 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.

  10. 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!

  11. Derek Bradley ceo PanaceaIFA 16th November 2011 at 4:20 pm

    Paul, this is so correct. The FSA, it would appear, see that punishment and retribution should rain down on those least able to resource a fight back. Banks will fight and at any cost as the PPI fiasco has clearly demonstrated.

    Personal liability only appears to sit at the door of those who stand little chance of recovering after a regulatory beating for wrong-doing.

    At the moment we have a regulator that carries very little if not zero personal accountability, failures are not met with an acceptance, apology and a ‘falling on swords’. So why should they treat those in the banks any differently.
    In the FSA regulated world, failure by IFA firms- no matter if only with the benefit of hindsight it could have been prevented, can carry harsh penalties and often the payment of considerable levels of compensation even resulting in the loss of one’s business or at worst livelihood and possessions.
    But not for the Banks and their senior staff, not exactly a level playing field is it.

  12. I wonder why none of the Bank management have faced the same FSA disciplines as Peter Sprung ?

  13. Most commentators seem to be tarring all banks with the same mis-selling brush from this limited Which? mystery shop exercise. On this occasion it was Axa tied advisers who are under the microscope. The fact that 8.8% commission is payable is probably not to the detriment of the client as Axa may be funding this from margin, but it is an indication of the commission required to feed both the bank’s and the Axa adviser’s mouths.

    My experience of dealing with advisers is that IFA’s are better quality across a variety of measures, and bank IFA’s are equal to their non-bank contemporaries.

  14. There are a couple of issues here.
    Firstly why do the product providers who agreed the exorbitant levels of commission with the banks escape censure?
    Secondly most of the sales people were only credited 3% commission against targets with the bank pocketing the rest.

  15. I have a couple of thoughts on this working now as an IFA and in the past for a bank.

    While at the bank the priority for advisers is hitting target. File quality is relevant but not anything like as important when determining bonus or how much management pressure is applied to you. In the bank you are left under no illusion that you are employed to sell product.

    The risk checking from the reports would be focused on demonstrating that what you sold wasn’t unsuitable. How suitable it actually was is a completely different matter.

    Working as an IFA, thankfully I am able to adopt a very different view. I can spend more time with clients to make sure I get it absolutely right, there is opportunity to meet family members and take greater care with elderly clients. There is an incentive for me to build long lasting client relationships and it is in my financial interest to see my clients on a regular basis.

    Both those that work in the bank and as an IFA can be equally well intentioned, yet those working for the bank are under incredible pressure to hit target and metrics. It’s no wonder that sometimes they don’t service a client as regulary as an IFA receiving trail / fee income would as the bank doesn’t reward this behaviour.

    My second thought is this…. Why is it any less acceptable for a client to receive bad advice from an IFA than from a bank? If both are equally bad them treat them both the same!

  16. All fines and compensation should be paid before any bonuses and abnormal pension contributions are calculated and paid. Frankly I believe the retail banks should be bared from selling any investments, pensions or insurance. Fortunately I’m now retired from fin. serv. but still working.

  17. One partner is a solicitor at a top city law firm. They represent banks against the FSA, and the bankers get their way as they threaten to get a judicial review of the FSA findings, and the FSA don’t have the budget to fight these.

    The banks have the fire power to pay for better barristers than the FSA, and the banks don’t employ ex-government ministers as they look good in PR terms, but because they can navigate the corridors of power in Whitehall.

    If your wallet is big enough, you have nothing to fear from the FSA.

  18. Another issue which needs to be addressed is the tied adviser situation.

    I am helping a client with a complaint regarding a bond sale (big surprise there).

    Whilst my complaint was intitally against a building society, there biew is that it falls under the auspices of the life co the tied adviser represents!!

    How does that work then?

    Building Society chooses to tie to a life co and sell its products. Its advisers then sell products and earn big commission but can simply foist the misselling issues on to the life co?

    You really couldn;t make this up.

    As an aside the life co seem to be addressing the issue without questioning their responsibility to do so.

    Ian Coley
    Medical Investment Services

  19. I think one of the misused terms in financial services is mis-selling when fact we should call it by its real name FRAUD!

    If we use this correct terminology then prosecutions of board members and senior management under the Criminal Justice Act would be commonplace and would act as proper deterrent for the future.

    I have been campaigning for the last four years for the FSA to prosecute Senior Directors and Senior Managers who are guilty of serious fraud on the general public. It is the case that this particular fraud is so large that it’s hard to think that it is fraud when in fact marketing policies that either have little benefit to the consumer or in fact no benefit while earning commission is in my book fraud “clear and simple”.

    Like many on here I would like to know the reasons why there have never been any Senior Directors or Managers prosecuted? After all the fines that are handed out are no more than parking tickets when the profits to be made are in the billions!

    I used to work for a bank like many independent financial advisers and I can clearly say that the pressures that you are under in those organisations to sell are immense. I remember one particular manager wanting to know why I hadn’t ever sold a structured bond and when he didn’t like my response, he put me on a daily audio to explain my actions. The reason why I refuse to sell the product point-blank was because I felt the product was so poorly designed and gave little benefit to the consumer. This did not interest him probably because he was on some incentive bonus to sell that individual product (this may not be cash based it could be a holiday somewhere). I also pointed out that if the client complained that this would be registered against my individual license and I would have to declare this to a new employer, he stated I was talking rubbish. I left the bank within two months to set up my own practice!

    The FSA is meant to monitor management structures to make sure that they are adequate to assessing risk but also under employment law to make sure that corporate bullying is not taking place. I’m afraid to report that corporate bullying within banks is so rife that I wonder when it is that employment solicitors will start to bring cases against these companies.

  20. George Williamson 17th November 2011 at 1:01 pm

    RMAR / GABRIEL provides the FSA every 3 or 6 months with ALL the Data they need to manage misselling by all Advisers. If they could be bothered to do there job properly, they could solve this problem within about 3 seconds.

    This would also mean that the RDR would not be needed.

    Please could somebody just get the FSA to do what they are paid to – REGULATE – and not consult, change, discuss, etc, just DO YOUR JOB!

  21. I agree with Peter Herd. There is no such thing as “miss-selling”, it is simply FRAUD and as such the question is how far up and down the sales line it goes.
    A few prosectutions for fraud would be good. It is also worth reminding the F-pack senior staff, that they may believe themselves immune, but I suspect they are only immune to civil claims, but do not have immunity for fraud. If it any evidence comes to light that senior staff at the FSA have colluded and acted fraudulently, then they may find they become the whipping boy rather than the IFA.

  22. I worked at as an IFA at a bank a number of years ago. I was always intrigued as to how the senior management decided up the panel/matrix of the product providers. We all had to stick to the panel.

    So, a provider that gets on a panel knows it will get a load of business. So the rewards for the bank would be better than for a small IFA, no doubt.

    I was at our annual conference ( UK one) where the director came out with the phrase ” You are not here to give advice, you are here to hit your targets!”. Luckily that individual was retired not long after I left. I subsequently found the culture got worse after I left. The advice is more of a tick box mentality, I spoke to a respected recruitment consulant about this and was told that the HR depts of some of the banks are more focussed on salesmen than qualified IFAs.

    The only praise that an IFA got was on the size of the commission. Of course, if something went wrong, the IFA was on his own and suspended.

    I recall working at an employee benefits consultancy a case when I had sorted out a mess for a client ( complicated pension case). This file was pulled out for a random review. This case did not earn much at all, but was a lot of work. I got called into the director’s office. I was congratulated on the quality of the work, a little later I was promoted.

    Had this been at the bank, no doubt I would have been told that I had wasted too much time on a low earning case.

  23. The banks still enjoy the mis-placed confidence and loyalty that many customers still have in them, particularly the old and vulnerable who will ‘sign anything’ because the bank told them! This is of course an outrage, and shows scant regard for client needs, and only for the bank’s needs to make more and more pfofit from unsuspecting customers who are already baling them out. Anyway, their lobby at the FSA is far too powerful for anything to ever change for the better. If I as an adviser was to act like these banks the FSA would be all over me and my firm in a shot. recently i recruited a really nice and well qualified member of staff, who was absolutely sickened by the pressure put on her by her previuos employer. Guess who? Yes, you have it one: a major high street joint stock bank, owned by the taxpayer!

  24. Cynically – I have to say: “Yeah – Right – Just like senior bank staff felt that they had to fall on their swords over every other mess that they have dragged their customers into, while being paid indecent sums of tax-payers money” What a shame that any advice at all is allowed to be given by anybody BUT IFAs. . . . . . and that a GENUINE independent body can’t regulate the finance industry with real teeth to bite the big bullys and complete understanding of the ethos of IFAs and the provision of advice where the adviser acts as the agent for the client, NOT as an agent of the provider of the investment, etc.

  25. Having worked at Nat West, believe me the culprits have already collected their bonuses and moved on to pastures new., leaving a pile of debris behind them. They should be made responsble for the behaviour of their teams which would stop them bullying them to hit targets rather than meet client’s needs.

  26. Having seen one financial adviser attempt suicide, at least 5 have nervous breakdowns, and 3 good ones bullied out of a single high street bank. I was told ‘they are not up to the job’ (despite having over 70 years experience between them). The culture is S**t and nothing will changer until the banks are banned form selling financial products. It just won’t happen.

  27. Re Comment by Johm Morgan. 16/11/11 4.15pm

    Likewise ! Couldn’t agree more.

  28. Who is able to take the matter forward?

  29. to: snooks

    What we need is some sort of organisation that oversees banks and prevents things like fraud and “mis selling” going on.

    An organisation that could have the force of law to act in the interests of consumers and the wider public.

    Maybe the government will set something up along those lines, but I am afraid the public is on its own until then…

  30. Having worked as a tied advisor for a large bank, not mentioning any names but they claim to be ‘good with money’…I was shocked to see what went on during the 4 years I was there.

    I saw a number of advisors suspended pending investigation for mis-selling Investment Bonds as FTDs and subsequent customer complaints!! ALL advisors were brought back and re-instated as apparently the company hadn’t followed correct dis
    ciplinary procedures. Nothing every happened to Area or Regional managers, yet everyone knew excactly what went on….to make things even worse, each advisor was still on full pay pending investigation, hence they made thousands for ripping people off!!

    Fortunately I was made redundant from this company and am now working as as IFA.

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