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FOS blasts banks’ sales culture as ‘recipe for disaster’

The Financial Ombudsman Service has hit out at banks for selling complex products with sales incentives as a “recipe for disaster”.

Speaking at a fringe event at the Liberal Democrat conference in Brighton today, lead ombudsman on banking, loans, consumer credit and mortgages Jane Hingston said the bonus culture in banks needs to change.

Earlier this month, the FSA launched a crackdown on banks’ sales incentive schemes after a year-long review into the issue. The regulator is also investigating Lloyds Banking Group over its sales incentives.

Hingston said: “Bonuses are really blunt instruments. We need to see a change in the way banks target and incentivise their staff because it is on the ground where the problems occur.

“I see a lot of people in financial services providers, in the branches and call centres, who do not understand how the products they are selling work in practice. Innovation is a buzzword and everyone wants to make something new and exciting but the problem is that it is hard to keep people up to speed on what the product does for the consumer. When you add the method of remuneration to it then it is a recipe for disaster.”

Hingston says that staff need to be properly trained to know what they are selling, which would lead to fewer complaints to the ombudsman.

Lib Dem deputy chief whip Lord Richard Newby said: “Banks have to start paying staff in a way that does not incentivise perverse or unethical behaviour. In many cases that has not been the case in the past, but banks under the threat of, and because of, regulation are changing the way they are paying bonuses. It will change some behaviour and it is very necessary.”

Labour peer and Consumer Credit Counselling Service chair Lord Wilf Stevenson said the payment protection insurance misselling scandal illustrates a running problem with the financial sector

He said: “The major sellers of financial products are more interested in the profit they can make and less in the process and provision of services.”

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Surely we are doomed to repeat the mistakes of the past particularly with simplified products with no advice given. In fact this time around the banks will have a get out of jail free card because they will claim that no advice has been given when their sales staff sell simplified products. This is already happening when clients are asked to sign and non-advice declaration at the beginning of an interview, as happened to one of my new clients who has sold a structured product under this system from one of Britain’s largest building society who I will not name for legal reasons.

    Recipe for disaster I don’t think the FSA has learnt a thing if they go ahead with simplified products that will be sold on mass on execution only basis. As soon as a bank staff opens their mouths they are giving advice as I have witnessed on many occasions when I used to work for banks and building societies. The only answer is better trained staff and license products signed off by the regulator. The problem is the regulator is not wanting to take responsibility for its own actions both in the past and in the future.

  2. Well it’s a start albeit about 20 years too late but better late than never. The problem is that it’s not just a bonus culture but at retail branches, one of survivial. If staff don’t hit their points targets they are out.

    Sadly enough punters still trust the local staff on a one to one basis without realising that too often they enter the branch with a points value over their head.

    Don’t get me wrong, we live in an aggressive world and commercial self interest abounds at all levels but bank sales practices and people looking the other way have some nasty historic parallels.

  3. I have to agree with Duncan here. Having worked for a major high street bank it is less about the commission they can earn and more about “how do I not get fired?”.

    Until targets are changed and a culture of needs based selling is adopted over the current culture of “SELL, SELL, SELL” we will never be able to trust what a bank based “adviser” says.

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