Financial advisers might feel aggrieved that in the regulator’s eyes it appears to be one rule for the big banks but another for them.
Last week, the FSA took the banks to task for the staff incentive schemes they run.
It is hard to disagree with the regulator’s conclusion that so long as staff bonuses are linked to sales targets, customers will end up being sold all manner of duff and downright dangerous financial products.
At one end of the scale, this might be overpriced life insurance or paying for a current account you could otherwise get free. Far more seriously, though, this “bonus mentality” has seen banks like HSBC flogging five-year investment bonds to the elderly and infirm and staff in Lloyds selling risky structured products to those in retirement.
Given the catalogue of horrors uncovered by the FSA – which included “super-bonuses” of £10,000-plus and staff seeing their basic salary cut if they did not meet key sales targets – you would have though it would have brought it full regulatory weight down on such corrupting practices.
An outright ban, perhaps. Or new rules stipulating that front-line “advisers” do not get sales-related bonuses. Or at the very least perhaps some convoluted key facts document so consumers have a fighting chance of seeing what the person selling the product stands to gain from the sale.
But none of these things have occurred. The FSA is appealing to the chief executives of the bank to help change the sales culture. Rather than outlawing these incentive schemes, the FSA is calling for them to be “improved” so “customer outcomes” are taking into account alongside sales figures.
This is obviously in stark contrast to what has happened to advisers, where, for the sale of investments and pensions at least, commission will all but disappear within a matter of months
I have never been a fan of commission payments as they can blind advisers to the potential pitfalls of certain types of investment while overlooking others.
Of course, getting rid of commission creates its own problems. I am sure there will be far fewer people getting financial advice because they are reluctant to hand over their hard-earned cash for a service they previously thought of as “free”. (And policymakers should certainly now be looking at what can be done to address this problem).
In recent years, there have been attempts to “improve” the way commission works, with consumers given clearer information about what an adviser will earn as well as being given options about how they pay for this advice.
But the regulator is obviously not convinced that this halfway house has worked. Hence – after what seems like years of foot-dragging – the introduction of the RDR.
So it seems odd to me that the lessons learned here have not been applied to other parts of the financial services industry. This decision seems even more shocking when you consider the sheer number of customers that buy financial products from banks compared with those who visit a traditional IFA. As the recent PPI misselling scandal has shown, the scope for misselling on a grand scale – £9bn in compensation, and counting – should not be underestimated.
Rather than tinkering round the edges with “Dear CEO” letters, the FSA should take a far more robust stance on such practices. Commission and incentive scheme are surely just two sides of the same coin.
While they are at it, there should also be far clearer distinction about the service that “advisers” in bank branches offer. I think woolly terms like “wealth manager” “financial consultant” and planning adviser” should be binned. Anyone selling a financial product – in a bank or otherwise – should either be an adviser, whose services are paid for by the consumer, or else known as a salesmen. Call them a “wealth salesman” if you will. But if there is greater clarity about this, customers are more likely to be on their guard and far less likely to be misled.
Emma Simon is deputy personal finance editor at the Telegraph Media Group