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FCA raises concerns over networks’ oversight of sales incentives

The FCA has raised concerns that networks do not have sufficient oversight and understanding of the sales incentive schemes being operated by their appointed representatives.

In its latest review of sales incentives, published this week, the regulator says principal firms are responsible for managing the risk of misselling and need to have sufficient understanding of any incentive arrangements in place at their AR firms. But it says this is not always happening.

The review found that in 16 per cent of incentive schemes, some or all business was sold through ARs who had their own sales staff.

Some of the principal firms said they did not have any information, or had only partial information, about the financial incentives schemes the ARs used for their own sales staff or advisers.

The regulator says this suggests firms need to do more to understand the risks in the way ARs use incentive schemes.

The review also raised concerns about incentives schemes for investment and protection products, and for non-advised services.

It found many new incentive schemes introduced by firms are discretionary and involve some form of ‘balanced scorecard’ where staff are appraised against a range of objectives, and not just sales.

The FCA says while these schemes can reduce the level of risk they can still drive misselling. It says firms should consider if scorecards or objectives are sufficiently balanced, and warns sales managers may still be biased towards those with better sales results.

Paladin Financial Services managing director Tim Purdon says: “It is critical that networks know what their ARs are doing. The existence of incentives suggests there are too many advice firms providing a sales-based, rather than a service-based, proposition.”


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