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FCA: Firms still failing to manage sales incentive risks

Financial services firms are still failing to properly manage the risks of sales incentive schemes and monitor poor behaviour in face-to-face sales conversations, says the FCA.

In the regulator’s latest review of sales incentives, published today, it says one in 10 firms with sales teams had higher-risk incentive schemes and were not managing the risk properly.

The FCA says while it found significant improvements at firms of all sizes, there are still a number of areas of concern where further work is needed.

The regulator says firms need to focus on:

  • checking for spikes or trends in staff sales patterns to identify areas of increased risk;
  • doing more to monitor poor behaviour in face-to-face sales conversations;
  • managing the risks in discretionary incentive schemes and balanced scorecards, including the risk that discretion could be misused;
  • monitoring non-advised sales to ensure staff who are incentivised to sell do not give personal recommendations;
  • improving oversight of incentives used by appointed representatives; and
  • recognising that remuneration that is effectively 100 per cent variable pay based on sales, increases the risk of mis-selling and managing this risk.

FCA chief executive Martin Wheatley says: “18 months ago we gave the industry a wake-up call and it recognised that a poor incentive culture had helped push bad sales practice, which led to misselling.

“We have seen some good progress but it is going to take time to see whether the changes firms have made to incentive schemes and their controls stick, and whether good beginnings are part of genuine cultural change. But consumers can be assured that this remains an area that we will be watching closely to ensure poor practice doesn’t return.”

The FCA says it will carry out further thematic work on sales incentives.

It says all the major retail banks have either replaced or made substantial changes to their financial incentive schemes, but warns that this progress will only be effective in reducing the risk of mis-selling if changes are embedded for the long term and part of wider cultural change.

The regulator says it has also made it clear that firms should not simply replace bonus schemes with other performance management measures, which can be just as capable of causing poor sales behaviour.


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Incompetent Regulators 4th March 2014 at 10:42 am

    quotation “It says all the major retail banks have either replaced or made substantial changes to their financial incentive schemes, but warns that this progress will only be effective in reducing the risk of mis-selling if changes are embedded for the long term and part of wider cultural change.”


  2. Yes what – reps rewarded by sales again so churning taking place, etc, etc….. no, surely not! At least it’s not 8% commissioned WithProfit Bonds but the models of some of the restricted groups seriously need investigating I suggest….. changing investors into highly front-end costed products with rather generous ‘trail’ (oops – sorry, annual adviser fees) is something that has not been reviewed adequately I suggest….

  3. The FCA has been rigorous in its determination to follow up on this theme. The FCA Handbook is very clear in its guidance for companies in terms of the responsibilities of Providers and Distributors for the Fair Treatment of Customers.
    The FCA has been cautiously optimistic in the past, but clearly sees that there needs to be renewed focus. The report is comprehensive and picks out some key issues for firms.

    • Over half of the incentives schemes payout out between 10-49% of total remuneration. This level of variable pay significantly influences behaviour
    • 56 % of schemes reward cross selling with incentive multipliers, although the use of this type of design has reduced
    • There has been an increase in discretionary bonuses and a reduction in formulaic incentives

    Firms clearly need to ensure growth through increased sales and margins but not at the risk not treating customers fairly. Added to this, firms need to remain flexible and responsive to the market. How do firms manage their sales incentive risks? Three areas require focus – design, reporting and governance. Investment in Sales Performance Management technology will improve firm’s capability in all three areas. Modelling new plan designs and assessing impact is quicker and more accurate, reporting on sales performance and impact on variable pay is more accurate, timely and transparent. Finally, managing incentive compensation through technology provides an inbuilt governance that is vital for risk management.

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