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FSA set to take action over direct salesforce incentives

The FSA sees the financial incentives paid to direct sales forces of banks and providers as an “emerging risk”, and says it plans to take action against firms involved.

The regulator has published its retail conduct risk outlook today, which highlights the areas of concern and troublespots the FSA foresees emerging over the next year.

It published its first retail conduct risk outlook last year. The FSA says since then it has carried out thematic work on financial incentives of in-house sales forces across a sample of firms and sectors, to assess whether financial incentives increased the risk of inappropriate selling.

The FSA says: “At an individual firm level we have found a number of incentive schemes that significantly increased the level of risk, which was not being adequately mitigated.

“We are now working on the next steps, including taking action against firms where appropriate.”

The FSA is also considering publishing guidance or changing its rules on “high risk reward arrangements where the risks may be difficult to control”.

The regulator defines “emerging risk” as risks where it has evidence of poor conduct in firms but little or no evidence yet of widespread consumer detrient, but where it believes the risks could grow.

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Comments

There are 24 comments at the moment, we would love to hear your opinion too.

  1. The “inappropriate selling” has been going on for years in the banks due to the incentive to sell = ££££ and the incentive to not sell = no job and the penalty for inappropriate selling = no financial recourse on the individual who got the bonuses and made a lot of money. Where exactly have the FSA been? Idiots they make the whole industry look stupid.

  2. This rather highlights the basic flaw of the RDR commission ban. Even if the Fsa can spot and prevent incentives, they cannot force the bank not to pay their “Advisors”, so there will be the option of independent advice that the client has to pay for or tied sales that appear to be “Free” but, of course, where remuneration costed into the product.

    One wonders, therefore, if these providers will make the same products available to IFAs with a customer discount to recognise this factor. Somehow I think not and there’s the rub.

    Little surprise that so many IFAs think that RDR is a con.

  3. just watch and wait for them to hit the platforms and funds who have given some ownership to advisers

  4. Not sure if I missed the bit about a dying scorpion, but if this is the headlines on a Tuesday, I am so excited about what’s coming the rest of the week !

    FSA sounds misselling risk over absolute return funds

    FSA: Ucis providers ‘encourage’ misselling

    FSA: Networks face further strain and risk

    FSA repeats provider influence concerns

    FSA warns of poor conduct in private banking and wealth management

    New platform paper this month as FSA warns on corporate wrap

    FSA set to take action over direct salesforce incentives

    Is there a headline which states….
    FSA staff so worried they have done nothing for about 10 years and may not get their cushy jobs in the FSA2, they are now trying to prove the millions they have been paid was not a waste of money!

  5. man on the moon 13th March 2012 at 12:08 pm

    Now I really wonder if the FSA will deal with those that incentivise with commissions on pensions & investments as now post RDR?

    The Banks, direct forces and multi distributors who have or white label their own products will simplify carry on as pre RDR.

    A level playing field which has a slope and a force 9 gale blowing at Independents and Restricted Advisors.

  6. Like many IFA’s I thought that the FSA had put RDR in place to help their friends at the banks and large insurance companies. Now it appears that they did this entirely by accident.

    They have finally spotted the huge flaw in RDR that Stuart rather neatly describes above.

    No wonder the large insurers have been keeping so very quiet! RDR will destroy their IFA distribution but that’s not a problem because they will be able to have a direct sales arm that can wipe the floor with IFA’s because it’s advice will be free…that is, costed into the product.

    Hang on – haven’t we been here before? Remember before 1995 and hard disclosure.

    The FSA may be able to control incentives but if you are paid a decent salary and have a nice BMW on your drive then the incentive will be to keep your job. How do the FSA imagine they are going to stop that?

    The FSA have no understanding of the real world and yet again the law of unintended consequences strikes at the heart of their beloved RDR again.

  7. Incentivised commission payments will continue after RDR if you are a direct salesman in the same way that Equitable Life never paid teir salemen commission, it just gets rebranded as bonus.

  8. I find it worrying that the FSA appears to have no understanding of business nor human nature. With the possible exception of FIFA I cannot think of another organisation that makes so many serious errors but still retains all of its power completely unchecked.

  9. They have taken 24 years to find that.

    Good job they are not representing us in Hunt the Thimble at the Olympics

  10. Stephen @ Create Wealth Management Ltd 13th March 2012 at 12:57 pm

    Emerging risk?! Is that a joke?

    The only thing that is emerging is the head of the FSA being withdrawn from somehwere rather unpleasant!

  11. Becoming a headcase IFA 13th March 2012 at 1:11 pm

    I haven’t had so much time to read these articles, lately, but when I do I haven’t seen as many comments that are pro RDR as there used to be. Are there any pro RDR advisers left? Please show yourselves.
    Or are you too embarrassed?

  12. Why not read the FSA RCRO document which was published today rather than getting your inforrmation from websites. Its an important piece of work that affects us all, and is also alot more balanced than appears here. The above point is about loopholes that will need to be found and closed as with every new system. Its not as bad as you all seem to think it is.

  13. @A Munro – nice to see that the FSA is on here and does read these blogs.

    I realise that MM reports this in a way that makes the FSA look daft but they don’t need much help. The RCRO document is much more balanced but the loopholes that have been created seem no improvement on the ones that existed before.

    The only difference is that now it will only be insurers and banks that are able to exploit them to the demise of the IFA.

  14. It helps to read the new rules instead of making assumptions and getting yourself into a pickle.

    COBS 6.1A.9R requires product providers with advisers to ensure the level of adviser charges is at least reasonably representative of the service provided.

    COBS 6.1B.7R effectively requires product providers with advisers to make clear to clients the difference between adviser charges and product charges.

    “It is tempting, if the only tool you have is a hammer, to treat everything as a nail…”

  15. @ A Munroe
    ….because we do not get paid to read the millions of words churned out by the FSA and have so much red tape to deal with that it takes up most of our time!

    The latest MMR document was the length of a novel, as was the rather misleadding data appendix. It is, to put it mildly, rather time-consuming.

  16. Incompetent Regulators Award Team 13th March 2012 at 2:09 pm

    FSA, FOS and FSCS = Nazi and Communist behaviour. Everything is to be vanilla flavoured. All set up by a flawed Labour politician, continued to supported by flawed government, running a flawed regulatory system with flawed people who work in them.

  17. ‘Emerging’ who are you kidding ? It has been the elephant in the room for over 30 years. The whole way direct sales forces are ‘incentivised’ or ‘;managed/threatened’ to sell is an absolute scandal. Banks should stick to banking, not be giving so called financial ‘advice’. At the very least their staff should not be allowed to call themselves ‘advisors’ They are sales staff, pure and simple.

  18. Incompetent Regulators Award Team 13th March 2012 at 3:07 pm

    The FSA should take a look at the FOS bonus system!

  19. er… Wot about the FSA bonus system? Surely that is something that needs urgent attention.

    What was that porcine item flying past my window?

    : )

  20. Interesting that the emphasis is being focused on product providers and employed staff.

    I trust that spotlight will also be shined on providers with self-employed ‘partners’ – who have an even greater potential conflict of interest, as they do not earn if they don’t flog enough bonds every month ….. sorry, provide wholly objective and justifiable advice.

    In order to balance the playing field, perhaps the answer is to remove the financial incentive for arranging tax wrappers, and banning the arrangement of segregated mandates (with additional charges) over the cheaper, direct alternative?

  21. Never mind looking at the FOS bonus system, the FSA should look at the FSA bonus system first.

  22. In the real world, you cannot run a salesforce without offering the salespeople incentives for selling. Given that the principal raison d’etre of all tied and direct saleforces is to sell, and that they cannot provide advice on anything but the products they have to sell to keep their jobs, just what exactly is the FSA’s plan of action? To insist that all tied and direct sales agents must be paid a flat salary regardless of how much or how little they sell, with a blanket ban on any additional rewards for selling a lot or sanctions for selling only a little? Even a flat salary has to benchmarked against achieving specified levels of revenue generation.

    Then again, in view of the fact that the FSA allocates tens of millions of pounds of OPM every year to pay its staff and directors handsome bonuses, regardless of how disastrously it fails to fulfil its statutory remit, year after year, is it any wonder that these latest proposals are completely disconnected from the real world of commerce?

  23. ‘Emerging Risk’ – are they having a laugh

  24. With financial incentives comes the possibility of corruption (mis-selling, abuse, call it what you will). Perhaps banks should be reclassified as shops, because as far as I can tell they operate in exactly the same way as a mobile phone shop or any other retailer. Let’s stop pretending that they give advice and have them openly ask customers if they want to buy one of their products. Removing commission from products is probably a good thing as it paves the way for true professionalism where advisers are paid for the time and effort (and their knowledge) they have put in to get to where they are and not because they can flog lots of products.

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