The FCA has warned that its sales incentive rules apply to self-employed advisers who receive all of their remuneration from a proportion of fees or income paid to the firm.
In its latest review of sales incentive schemes, published today, the FCA says responses to its online assessment suggest that some firms believe they do not have any form of financial incentive scheme if staff do not receive a separate bonus or other incentive payment linked to sales.
But the regulator says that in instances where staff or self-employed advisers receive all of their remuneration from a proportion (fixed or otherwise) of fees, income or commission paid to the firm, it does consider these arrangements as incentive schemes.
The FCA says this is because the level of remuneration an individual can achieve is variable as it is solely based on the products or services taken up by their customers and the fees or income this generates.
It says that 100 per cent variable pay/commission-only arrangements, where no salary is paid, is an incentive scheme feature that significantly increases the risk of misselling.
The review says: “We accept that many smaller firms will have 100 per cent variable pay because of the nature of their business models and we are not directing firms to adopt remuneration approaches that include fixed costs.
“However, it is important that all firms understand and manage the risks of misselling rising from remuneration based on 100 per cent variable pay.”
The FCA adds that its online assessment suggests small firms with staff subject to incentives may not have acted on its previous guidance on sales incentives to the same extent as other firms.
For instance, the smallest firms were less likely to have any pro-active testing in place for inappropriate behaviour in face-to-face sales, and were less likely to say they had been prompted by the FCA’s guidance to consider their incentive arrangements.
The review says: “The smallest firms that have incentive schemes for sales staff or advisers, including 100 per cent variable pay, need to read the guidance carefully, along with this publication, and take action to improve controls where required.”