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Champagne bonuses and ‘a grand in your hand’: Why Lloyds was fined £28m

Automatic demotion for failing to meet targets, uncapped bonuses and one-off payments including a ‘grand in your hand’ competition led to a serious risk of Lloyds Banking Group advisers selling products consumers did not need or want, says the FCA.

In a final notice published today, the regulator has set out details of the largest ever fine imposed by the FCA or FSA for retail conduct failings: a £28m fine against Lloyds over “serious failings” related to its sales incentives schemes.

It found fear of demotion, incentives to meet end-of-month targets and a “flawed” system which allowed advisers to meet standards even when suitability failings were identified were to blame. 

From January 2011, Lloyds TSB introduced the right to automatically demote advisers who had consistently failed to meet 90 per cent of their sales target over a nine-month period.

If advisers were demoted, they would stay on reduced basic salaries for a minimum of nine months. The drop in salary for a middle tier adviser for a one tier demotion would be from £33,706 to £25,927, a 23 per cent drop.

In 2011, 139 advisers were demoted by one tier and four were demoted by two tiers.

Lloyds TSB advisers were given an individual bonus, an additional bonus and a team bonus if they achieved 100 per cent of their sales point targets over a three-month period, which was referred to as a ‘champagne bonus’.

The FCA says this created a disproportionate reward for, and higher risk around, the marginal sale that took advisers over the threshold.

Advisers were also paid uncapped bonuses, which incentivised them to continue selling as many products as they could by the end of the month after meeting their target.

In addition, Lloyds TSB advisers earned more sales points for larger value and longer term protection policies, thereby creating a risk that advisers would persuade customers to take out more cover than they needed or select a product term that was longer than required.

Advisers also had to meet minimum targets on product mixes to obtain additional bonuses. For Lloyds TSB advisers over the relevant period, this required 1.5 to two times the number of protection products to be sold compared to sales of savings and investment products.

In addition, advisers had opportunities to win one-off payments or prizes, such as a ‘grand in your hand’ competition in September 2010 where those who met sales targets for the month received an additional £1,000.

The FCA found Lloyds’ systems and controls to monitor the quality of sales by advisers were “flawed” as they allowed advisers to pass even if significant issues were identified with their sales.

During the relevant period, it identified 1,826 instances where a Lloyds TSB adviser had one instance of inappropriate advice identified and still received a bonus payment, and nine instances where an adviser had five ‘advice fails’ in a month and still received a bonus.

The bank focused its risk monitoring on higher risk product or customer characteristics.

But the regulator says it should also have quality monitored sales by advisers who were at risk of demotion, close to reaching bonus thresholds or approaching end of month targets.

This type of risk based monitoring, carried out on Halifax advisers after the FCA’s thematic review visit, identified concerns relating to four out of 31 sampled advisers, which included advisers making sales to themselves, their family members and branch staff.

In the most serious case, the adviser had been at risk of dropping a salary tier and having a bonus ‘deficit’ of almost £5,000 to repay. Halifax and Bank of Scotland advisers could face bonus deficits which had to be repaid if they chose to receive bonus payments early and later failed to meet all their targets. 

The adviser processed sales of life cover, critical illness and expenses on death cover to himself and his wife for large premium amounts. He also sold a CI policy to a branch staff member which was later cancelled. Disciplinary action was taken against the adviser.

The investigation found there was a “significant bias” towards sales of protection products. The bank had a strategy of focusing on protection rather than investment sales in order to achieve its target of doubling its bancassurance customer base between 2010 and 2015.

During the investigation period between 1 January 2010 and 31 March 2012, the bank earned £600 in commission for every protection policy sold, ten times the average £60 in commission earned for every regular premium investment plan sold.

Over the period, Lloyds TSB’s protection sales rose by 65 per cent while its investment sales fell by 54 per cent, and Halifax’s protection sales rose by 94 per cent while its investment sales decreased by 68 per cent.

In a statement, Lloyds Banking Group says: “The group has already commenced a review to address potential customer impacts that may have occurred as a result of these failings. We are already contacting customers, and will continue to contact potentially affected customers over the coming months.

“The group recognises its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had.  We are determined to ensure any customer impacts are dealt with quickly and fully.”


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There are 9 comments at the moment, we would love to hear your opinion too.

  1. I find it difficult to understand that yet again that nobody is responsible for their actions. The advice was flawed and was given for personal gain, albeit that some may have feared for their jobs. Is that an acceptable excuse in every case?

    Where does personal responsibility end and corporate responsibility start? Was nobody in charge?

    Come on FCA – please explain why no action is taken against any one individual in this case?

  2. Not sure what makes Llyods TSB any different from the other banks, this sort of practise was rife throughout the banking sector. I spent several years working for a couple of well know high street banks and some of the underhand practises used to meet targets etc would make your toes curl. In the end I had to get out as it was just targets, targets, targets. Not one of the senior managers cared less about the customer.

  3. Why are we surprised? In the 90s, when bancassurance was ever growing, a Lloyds regional BDM admitted that the bank had a deliberate policy of randomly cancelling longstanding D/Ds. In that way, the client was forced to talk to the bank which then offered their financial services products as suitable repayments after “bad mouthing” the reliability of the provider concerned. My indignation was treated with scorn. My late brother in law experienced such a cancellation of a 16 year d/d. This was with another bank and when I revealed that I knew of the ruse , the d/d was quickly re-instated.

  4. So, LTSB advisers were under pressure to sell, huh? Well, who isn’t? Any adviser who runs his own practice will have had good and bad months, and been pressured financially at some point or other. The point in question is to do with ethics and management as a reaction to the pressure, not the pressure itself. We all have to hold our heads up in the street and be confident we’ve done a good job for people if we bump into them, and I believe the vast majority of advisers are professional and have standards, irrespective of the pressures they’re under, and it made no difference whether this was in the Bancassurance sector or IFA – the pressures are always there.

    Stop this Bank-bashing! It’s not healthy. Stop criticising your fellow advisers! They’re not all bad. We need to promote what’s good about our industry, not what’s bad. Get some positive commentary in the papers and promote our ability to do good for clients.

    The media has in the last few days had a go at the Annuity market. All bad news (again). I don’t know of any colleagues or former colleagues who promote the wrong annuity or charge too much. In fact annuities are very difficult to make money out of because the media don’t think it’s right to pay for advice, so here we go again – let’s have a go at the financial services industry! And before anybody starts going on about charging an hourly rate for their time and the like, what client with a £25,000 pension pot is going to pay £1500 for annuity advice?

    It’s time the media and the FCA stopped looking at costs and charges, and started to promote the very high quality of most advice and the fact that it needs paying for. We used to have a system called commission – it worked just fine. Bring it back!!

  5. Jonno, when the banks stop messing around and do a proper job everyone will stop bashing them!

    And I dont think there are many IFA’s that would consider bank ‘advisers’ to be fellow advisers. Bank staff are salesmen and although most financial services have to be ‘sold’ there are ways and means of selling. When i go to a restaurant the waiter will explain the specials of the day, i can have those or i can have what is on the menu, the specials are still being sold, but they aren’t being thrust down my throat. For many years everytime i went into the bank i would be accosted by the counter staff trying to sell me the latest load of rubbish they had to promote until i finally had enough and explained that i worked for a very successful IFA business and the response – well our product may be better – i just walked out!!!

    I dont know what you do, but it very much sounds like you work for a bank. Annuity sales dont attract 6% commission and therefore someone isn’t going to pay £1500 for the sale you referred to. The reason commission was taken away for most sales and the reason the banks withdraw from the mass market was because we have to explain in pounds, shillings and pence what the advice is costing, unlike what the banks were doing which was offering ‘FREE’ advice and then taking massive commissions with no disclosure what so ever!

    Of course the media are going to jump on the bandwagon and blame everything on the commission hungry salesmen, the problem is that as ever the media is about 5 years behind. It is now up to IFA’s to promote themselves properly and get away from being tarred with the same brush as the banks. But the biggest difference between dealing with an IFA and a bod in a bank is that most clients will keep seeing the same IFA for years, you would be lucky if you see the same person in the bank more than twice and so the bank salesman, who sold you a crap product for a massive commission, can hold their up high in the street as they have now moved on and now wont deal with you again.

    I for one will continue to bash the banks until they give me and all of us taxpayers our money back!!!

  6. Matt.
    Wrong on a number of counts.
    There’s a place for distributing mass-market products and there’s a place for distributing higher quality products. I won’t have it that bank advisers are poor. The products may not be the best, but I’ll defend Bancassurers for advising thousands of people to take up a pension or assurance product they needed because they simply wouldn’t have had access to those products due to not wanting or feeling able to visit an IFA. It often needs someone to put the suggestion of a solution into the mind of an individual for them to consider that proposal, as procrastination and apathy inevitably means most don’t bother. Hence if those thousands of clients end up with a product, it’s more important they have something than nothing, and that they are to some degree self-reliant in retirement than relying on the State.

    In practice, once clients have a feel for the advice we give, they will often then try to make their position better by seeking out more sophisticated products and could well end up replacing some of the Bank products with something with more potential, which is great, but for those who don’t, please don’t tell me the Bank advisers did them a disservice, because they didn’t.

    For your information I have 25 years in the industry, around half of which was indeed in a Bank (both tied and IFA/Private Clients, and in senior management positions), and half in private practice, much as an IFA. I’m proud of the advice I’ve given, and will stand by every last bit of it. I have had zero complaints in all this time (that’s ZERO, not zero upheld) I now run my own wealth management business. I understand the market place, and am sick of all the in-fighting, as that’s what’s ruining the business and reputation of all of us. Accept there’s a place for all levels of advice, and that there’s enough business for all of us

    The public isn’t dim, and mostly understands what they’re getting into from the outset, especially when the adviser explains it well (something the Banks did insist upon). Unfortunately the media perpetuate the blame and compensation culture to such a high level that many people jump on the bandwagon of complaints and redress, which is why your fees go up each year. I don’t believe all PPI or endowment policies were wrongly sold, yet anyone can get compensation. We need to be stronger in our defence of our advice. Hindsight’s great, but should be outlawed in considering a complaint situation. IN this arena, IFAs have as much to regret as the Banks:

    Miner’s Pension Transfers – IFA
    With Profits – IFA
    Arch Cru – IFA
    Keydata – IFA
    Unregistered Collectives – IFA

    The IFA sector isn’t the cleanest part of the business, and has its problems from the past. It was also the perpetuator of Bond commissions of up to 8% and favouritism in recommending some providers ahead of others, so you’ve no right to criticise the Bank advisers for chasing commission, especially when their income was typically limited to 3%, and they would only get paid a percentage of that (half?).

    Come down from your pedestal, and understand all parts of our profession – there’s still a place for all.

  7. Jonno, I’m not going to get into a personal argument with you about what you did and what others have done, and i agree there is a place for mass market products. The problem is and was, how are these products distributed and sold?

    I stand by my comment that bank staff are simply in it for the commission – whether this is for the money (quite literally the commission) or to keep their jobs, the problem is that bank staff are generally not there for the benefit of the customer. That doesn’t mean that every bank adviser is bad, but the processes and procedures under which they have to work is wrong. We all have pressures, but i certainly dont put any my staff under the pressure of losing their jobs or being demoted if they dont meet targets, that is a different sort of pressure altogether and is not a good pressure and can only lead to wrong advice.

    There is a place for all levels of advice, but there is a reason the banks have withdrawn from the mass market and it isn’t because the customers aren’t there, it’s simply because they have to tell the truth now and they know that no one is going to accept that what they believed they were getting for free for all these years is suddenly going to cost them a considerable amount. No the general public is not dim, but when you are fed a pack of lies how can they understand from the outset what they are getting? Bank adviser – ‘No i wont charge you anything for setting up that plan’ – taking 6% commission on the sale. IFA – ‘Yes it will cost you 3% of the amount you invest for me to set up this plan for you’. Big difference and this is why the press and customers think IFA’s are expensive and the banks offered such good deals, because the banks lied.

    I cant remember off the top of my head where the comment came from, but a big institution claimed it needed to make 6-7% on all sales to be profitable, whereas generally IFA’s have been charging 3 + 0.5 for many many years. Yes they are and have been some products that have paid higher commissions, but generally they are few and far between and certainly no where near as much as Lloyds et al taking 70- 80% commission on PPI sales!

    No industry is 100% clean and there are bad apples in all industries, but the fact remains that the IFA community did not bring this country to it’s knees and not one IFA in this country has been given millions of pounds of tax payers money to bail them out. Having never worked for a bank i cannot and will not defend them, but i respect your opinion and your personal experiences and your attitude clearly shows that some bank advisers did have morals and did act in the best interests of their clients. As i say all industries have their rogues and i am sure there are some good estate agents out there!!!

  8. I have been a bank adviser and an IFA. IFA first and then tied via two banks in succession then back to IFA. It makes me who I am and I can see both sides of the argument. My lined in profile confirms my background and experience (good and bad) so it is ironic to see that David Geale of the FCA has a linekd in profile with NO record of him working anywhere other than the FSA and then the FCA (same company, same company hosue number, same staff, but we are told it has different spots). Mr geale appears to be embarrassed about his background. Any comment Mr Geale?

    2012-present FSA, head of investment policy

    2009-12 FSA, sector manager, investments policy

    2005-09 FSA, retail investment policy manager

    2002-05 FSA, associate, retail investments policy

    2001-02 Charcol, independent financial adviser and mortgage broker

    1998-2001 Self-employed financial adviser/mortgage broker

    1996-98 Halifax Estate Agencies, mortgage broker

    1993-96 Lloyds Bank, financial adviser

  9. Jonno- Fair play to you fella, it is great read someone giving an intelligent and articulate defence of Bancassurance. I have grown so tired of reading holier than thou IFA’s joining an ill-informed witch hunt for Tied Advice blood.
    I got ousted from a major high street last October (a lovely Christmas present thanks) after 8 years. This is after spending a year obtaining Level 4 , only for the bank to royally shafted at the 11th hour by u-turning away from migrating to fees. I was told my role was redundant as ‘Clients don’t want to pay for advice’. This is is horse manure as all of my Clients already were, both initially and ongoing. I guess in hindsight I realise I was in the minority as Iooked after a lot of the same Clients for the whole 8 years. This is despite moving branches. I never recommended a product that was not suitable, why? Because I have ethics and a moral compass. A £50k basic salary protected me from making crappy recommendations to people at the end of the month just to hit target. I agree that the Bank created a monster, but engineers of that were sitting on the board of both the bank and it’s 100% owners major life insurance co. The amount of hidden profit being passed to and from was vast. This is the reason they never considered introducing an IFA role in the branches (a model that would have worked) because they were insatiable in their thirst for profit. After all, it was primarily the profit extracted from the life insurance co that bank-rolled the bank itself. I can understand why the FCA wanted to can this kind of closed book set-up, as corporately it placed the Client at the end of the list of priorities. That said, since successfully making the transition to IFA in the year since, I can honestly say there was much greater Client protection in the Bancassurance model (against crappy advice) than there is in IFA land. The controls, minimum requirements for suitability letters, liquidity etc meant you really did have to completely justify and rationalise any investment recommendations I made.

    This ‘advice’ fails they talk about is a nonsense. An adviser could get an ‘advice’ fail for missing out an administrative paragraph that had no affect on the recommendation. Ie a trust statement. This was rectified with a remedial letter, and the case would be cleared. I appreciate however that I was not one of those with 5 fails in a month. I have never heard of this grand in the hand either…. I guess Halifax was more FUBAR that we thought.

    Anyhow, if you think about the objective of RDR, it has failed. There are millions of orphaned investment Clients in the UK now that a lot of snobby IFAs will not touch because 1. They only have a £20k investment for their children’s education or a £20pm WOL plan written into trust for their executors to pay for funeral expenses. These Clients have been left high, dry and in the dark as the bank has not even told them that the face to face advice has stopped. Why? Because they do not want Clients realising they are still paying 0.5% of their fund values to the bank for an advice service they no longer receive. Why? Because they did not want thousands of Clients pulling their Investments, this killing the FUM of the investment co prior to it’s sale. This an abhorrent practice and angers me to the core. Why? Because I am a human being, not a commission thirsty, immoral ex-bank adviser. Clients will vote with their capital and monthly dd’s, and I truly hope that more of my now fellow IFAs stop wasting energy slagging off Banks, and get on with the real task at hand, and that is adoption.

    Merry Christmas everyone…..!

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