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FSA to crack down on bank advice

The FSA says it plans to crack down on financial advice given by banks and will investigate the effects that sales incentives have on the advice given to consumers.

Speaking today at the Which? Future of Banking Commission select hearing, FSA chief executive Hector Sants (pictured) said while the deposit-taking function of banks is guaranteed through the Financial Services Compensation Scheme, there needs to be greater trust in financial advice.

He said: “Within the banks we must distinguish between the two elements of service. There is the deposit-taking service, which can be guaranteed so that is not trust in the bank per se, it is trust in the system in its entirety.

“But the other component is the financial advice the banks offer and we can certainly improve significantly, and that is the intention, the behaviours of people supplying that advice through a mixture of more rigorous proactive regulation and more effective deterrence and enforcement.”

Sants also argued that consumers need to have a more realistic expectation of the outcome of advice, with greater understanding that it is a forecast and will not always be correct.

He said: “We do have to get consumers to recognise the inherent limitations of the advice service, which is that it will axiomatically not always be right.

“So we need to tackle it from both sides and acknowledge that we are not going to get to the perfect solution and people who continue to aspire to the perfect solution will continue to be disappointed.”

Which? chief executive Peter Vicary-Smith asked Sants whether there could be read-across from the RDR into incentivisation structures of front-line sales staff at banks, such as in-branch disclosure of incentives.

Sants said: “We are very conscious of the distorting effect that incentives can have on behaviours and on service and advice. Wherever there is the potential for incentives to produce distortion, if it is within our regulatory remit, we would look at it. 

“However we also have to bear in mind our resources and also the ability of the industry to absorb change. But I think ultimately, in term of the wider question, yes the regulator ought to be interested in all areas where incentives are having a potentially distorting effect on advice.”


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There are 61 comments at the moment, we would love to hear your opinion too.

  1. “Banks give advice?”

    Yes, it tends to be whatever it takes to get clients to take the tied insurance.

  2. Horse, stable door, bolted etc.

  3. FSA fed up with hitting IFAs turn on the hand that feeds them

  4. About bloody time!

  5. Robert Donaldson 18th March 2010 at 5:21 pm

    At l;east he is starting to realise that investments are a forecast not a cast iron guarantee. It has long been held that the client needs to have some understanding of what they are getting and whenever you introduce an element of risk things do not always go as planned.

  6. Horse, Stable Door, Bolted etc………

    Couldn’t agree more. Lets hope that it could just be used for all the pasts cons they have done.

    Well I wish…….

  7. You just have to laugh don’t you…………..don’t you?

  8. … ‘the financial advice the banks offer and we can certainly improve significantly, and that is the intention, the behaviours of people supplying that advice …’


    I now realise that Hector Sanity is actually not leaving the FSA for a bank job … he’s gonna be a comedian!! Bravo!! He’s been taking the p**s for long enough, anyway … …

    Oh, and ‘Improve significantly’ (their behaviours) … no sh*t, Sherlock!! It’s not difficult to reach that decision … … even my 68yr old Mum can tell you that … …

    Horse … stable door … bolted

  9. and here was me thinking that banks only gave clients information and that the clients chose the product because as we know every client who goes into the bank is a financial genius and doesn’t need advice…. only information

  10. A Chinese wall constructed by the Regulator should surely be placed between bank’s deposit taking and transactional functions and their sales arms. The bank’s access to people’s personal saving and spending habits through their customer’s transactions and account balances is priveleged information which the banks are using for fishing sales exercises and THIS is what should be stopped immediately.
    The banks have no rights to use that information for their own ends. Their access to it is a privlige which teh banks are abusing. Their unfettered use of the information amongst any of their staff who care to be trawling for prospects is anti competitive. By that I mean that the bank’s competitors in the field of financial planning advice do not have such access. The banks should not have access to schools with their sales messages either-giving out to schoolchildren that the bank is a source of caring advice when the reality is that the bank wants to sell you as much as it can at as high a mark up as it can and then hide behind a call centre. Using their financial muscle to get in to speak to schoolchildren with their bank uniforms on is using OUR money to compete with US.

  11. IFA (without a Target!) 18th March 2010 at 5:29 pm

    Hey, what a fantastic idea, its a shame such great ideas take so long to filter through the FSA! This should hopefully give them an insight into the real world of banking strategy….’Profit’ being top of the agenda.

  12. “However we also have to bear in mind our resources and also the ability of the industry to absorb change” – Is this in other worms, “We want to go through the motions, ‘cos we’re getting hammered on it, but we don’t want to upset our banking mates?”

  13. Andrew Pritchard 18th March 2010 at 5:35 pm

    Since when did the FSA consider “ability of the industry to absorb change” in its dealings with Independent Financial Advisers?

  14. Less than 20 years ago we had banks and bank managers who knew what they were doing and also knew what we were doing.

  15. 99% of the Mortgage KFI `s issued by banks are on the basis that the bank is not recommending a particular mortgage.

    Funny that, when my client only went into the back to pay a cheque in and was assaulted by the cashier as to whom her mortgage was with and why the banks offering was better..

  16. Jennifer Nicholls 18th March 2010 at 5:41 pm

    Why are the FSA 20 years behind. Do you think they use computers now? I wonder if they have mobile phones.

  17. Never Too Old To Rock 18th March 2010 at 5:43 pm

    ‘Hallelujah’— Leonard Cohen.

  18. Did this guy just wake up?
    Umpteen years of misregulation and only now are they willing to acknowledge what has been under their noses from the start.
    This is surely just a soundbite, in the hope that they will make themselves indispensible after an election.

  19. Bank advisors are pushed to achieve targets so advice may not necessarily be appropriate. I wouldnt take financial advice from someone working in Bank.

  20. simple answer ban Banks from giving ADVICE full stop.

  21. Desperation, desperation. A token jesture before they are abolished it means nothing.

    We all know as they do that they should have done this a decade ago but they have knowingly allowed the banks to get away with it for years as they believed it was in THEIR interests to do so and it was wasn’t it ??

  22. As Hector Sant would say;

    It is a deterrence that is axiomatically proactive and causing extreme incentivisation.

    Swallowed a dictionary or what? We are supposed to use this media to comunicate. Not, to confuse people. Mr Sant writes like this most of the time, why?

  23. I have worked in Banking, unfortunately it is nothing to do with customer, they are pushed to sell products whether or not it suits the customer or not, their sales targets are horrendous. Financial Advisers were expected to have 10 appointments a day minimum and sell whatever they could. The trouble was in the main the customers trusted the Bank and took whatever was thrown

  24. Hilarious…

    The Banks don’t even need to lend anymore…they merely borrow money off their chums at the B of E…ie the taxpayer at 0.5% and then lend it back to the government by buying 10yr Gilts paying about 4% to fund the nations debt crisis…They’re just re-cycling money from one door out the back door without giving a hoot about Joe Bloggs SMEs!!!

    In the meantime offering to “advise” their retail clients in the form of fleecing them rotten has become a nice little side they can all go back to not being owned by us and be paid huge bonuses..ho hum!!

    All in the name of Quantative Easing……


  25. Crikey! I have never seen so many comments on a news item before! The banks certainly do not seem to be popular with IFAs. Almost as unpopular as the FSA’s almost complete refusal to date to get to grips with what is probably quite a simple problem to solve.

    Banking information should NEVER get passed on to sales arms of banks, under any circumstances. The bank staff serving customers should not even be allowed to hand out leaflets about the banks’ other services to customers, although I would have no objection to those leaflets being displayed in a prominent postion in bank branches.

  26. Yes we all know that the Banks do not give advice just sell products,and that sales incentives play a major role in what they sell to customers.But before the IFA community gets too full of itself I came across and IFA this week who only 18 months ago advised a female client to invest £123k of her £145k redundancy in one product,an offshore bond with Canada Life.The IFA took 4.5% initial and 0.5% trail and the charges in the plan amounted to 10% pa for the first 5 years alone!Obviuosly best advice and not commission were the driving forces!!!!Not an Isa in sight and she wasn’t taking “income”.The fund she was invested in…cash 100%.

  27. Having worked in the ifa market and within bancassurance 90% of these comments are people who most certainly live in glass houses!
    As in any industry there ARE good bank advisors.

  28. “However we also have to bear in mind our resources and also the ability of the industry to absorb change. But I think ultimately, in term of the wider question, yes the regulator ought to be interested in all areas where incentives are having a potentially distorting effect on advice.”

    I can’t believe that the above is a quote! He is worried if banks can afford it & wether they can absorb the change!!! Does he do that fir IFAa & Mortgage / Insurance advisers. If that doesn’t prove that the FSA discriminate against us in favour of banks, I don’t know what does!!! Surely grounds for a class action against the FSA or we could just White wash over his statement.

  29. Lindsay Lockett 18th March 2010 at 7:34 pm

    Wow I can’t wait to squeeze the word “axiomatically” into my next suitability letter. This word has been pre-approved by the FSA for public use, as they will do with all financial products soon.

    Call me cynical but is the FSA now just looking at ways to pay for is 400 new recruits and has now decided that banks are next sector to tax (oops I mean fine). Yes banks give poor advice when compared to IFAs but we all new that years ago, the FSA has a more serious matter at hand now than regulation, it is revenue generation to ensure it’s survival. I think the FSA should pass a share of its fines onto FSCS, that way those that pollute the industry make a meaning full contribution to repairing the damage.

  30. I to have worked in banking for my sins and have to agree as much as you try to give advice this is not at all possible with targets, therefore sell whatever the customer will agree to.

    Mr Sants states he will look into this. I can only state what previous colleagues have stated, poppycock all wind and p**s to keep people happy.

    Hector I would like just once to hear a little sincerety in what you say please.

  31. Its about time, but as well get started on some some mistery shoppers onto these groups who are supposed to be giving generic advice for free under the new government scheme because as sure as eggs is eggs it will not simply be generic advice thats given.

    After 35 years experience in the industy and at 63 I will be deemed unfit to give advice in 2012 yet the government will let people from Age Concern give so called generic information. Do they not realise AGE Concern sells insurance and investment products.

    Get ready now and regulate them from the start because the term barrack room law adviser spings to mind.

  32. I have worked as a Mystery Shopper for some High street banks – when you have the financial knowledge it is frightening what some advisers will do to get a sale.
    As an IFA I can sleep at night knowing that I have given my clients the best advice without any pressure to get a signature.

  33. Hallelujiah!! Its only taken them 10 years!!!

  34. Peter Chesworth 18th March 2010 at 9:50 pm

    I really don’t know what adjective to apply to dear old Hector.

    Once again he’s missed the point it’s not even the bank advisers they need to target but the bank bosses who set the targets and the sales agenda. They decide what product is to be pushed and when.

    FSA targeting the minor pusher and not the mastermind. What a hoot.

  35. Hey FSA: what took you so long? Have you finally started to take the IFAs seriously?

    Look, you need to understand that the entire bank culture needs to be broken. Poor souls are just pressurised to sell and not think about the client. And then you think that just because the banks follow a structured sales process (flow chart), they meet your standards? We all know that it is the banks that have ripped off the consumers the most. They don’t care.

    Unless you address this selfish, product flogging culture within the banks, you will see the same results being repeated again in another decade as this is just a cycle. Break it.

    C’mon FSA – categorise all bank advisers as restricted advisers, make sure the public know what that means and then encourage them to go to an IFA for genuine independent advice.

  36. Hectors House needs to get in shape!
    Bunch of puppets
    Get it anyone ?

  37. this should have been his first task with in his role, not some hot air sound bite that he can’t follow through on because he’s about to leave the post!!!

  38. Strange this is all coming out when Mr. Sants is leaving the FSA. Is this “you cant blame me I dont work for the FSA syndrome.

  39. Anon – 10 appts per day. What nonsense, what bank was that?
    IFAs give great advice – transfer your pensions to this wonderful SIPP with 6% initial fee………………stick your money in this internet fund, property fund…..corporate bond fund….whatever the latest bubble is & it never gets reviewed……Income drawdown for low risk clients relying on a pension for their retirement. I work for a bank (albeit in wealth) & I have seen all of the above from IFAs. The problem is not the banks or the IFAs, its the way the whole industry is. Get rid of commission. nb only yesterday I heard of an IFA persuading a client to increase his mortgage from £50k to £100k to a) invest the extra £50k (6% initial fee) & get a higher proc fee………as another bubble builds in the stockmarket…..

  40. One has to ask WHY NOW – that he is going does he come out with these utterances?
    Could it be that he is

    Dazed and Confused

    Thanks for the laughs
    Never to Too Old to Rock

  41. Three things wind me up

    1. The FSA already have regulations in place to stop poor sales practices in banks, all they have to do is use them effectively

    2. Pious IFAs who think they are the only people qualified to advise customers

    3. Customers who hear what they want to hear, ignore risk warnings, jump on misselling bandwagons when a variable return investment sometimes goes down as well as up

    As with everything in life some do it the right way and some do it the wrong way, it doesn’t help the whole market place when headlines say the FSA will sort out Banks, in the end we all lose as trust is further lost by customers in all of us

  42. I once went for a job working for one of the banks. I was told by the Sales Manager that the company target is to see 20 customers a week – but the target for his team was 30 per week.

    At this point he could see me mentally doing the maths (30 divided by 5 divided by working hours in the banking day…).

    I didn’t get the job. Think it was my look of “30, seriously?!” that gave me away.

    Lucky escape I think.

  43. Funkmeister Sants (Bonus) Appreciation Society 19th March 2010 at 9:08 am

    Oh boy!!

    Re: Anon [6-48pm] Anon [6-50pm]

    A few years ago, I was collared by the Bank and ‘played along’ with their ‘review’ – I was advised that I should be putting about a third of my income in protection products … no mention of pensions, tax-advantaged products, review of mortgage … how I laughed when I got outside … din’t have the heart to tell them that I was a fully-qualified IFA!!

    I’ve also heard of an IFA firm taking 3% comm. on a £2.5m bond – the vast majority of investment being in CASH … … the balance in 3rd/4th quartile performing funds (that’s SHOCKING to say the least)

    My experience (and that from friends) is that Banks are generally much much worse (as a whole) in providing ‘advice’ than most IFAs … …

    There are cr*p apples at both ends of the scale … … and if you look at any mystery shopper outcome in MM – go back a whole year if you must – you’ll find that 96-99% of poor ratings fall at the Banks feet!!

    Re Mr Franks [7-49]

    Holistic planning may be the explanation – if money is cheap and you can get a better return from investing (and it creates a debt vs estate for IHT) then why not … obv not party to full details of the case incl A2R, but there MAY BE A PERFECTLY FEASIBLE EXPLANATION … you can’t simply call that advice cr*p (it IS if it was commission-only driven, I would add)

    Have fun, TGIF!!

  44. Yes, definitely about time. However, I struggle with the distinction of the term adviser. These bank staff are sales people pure and simple, there is no fee option and they are wholly reliant on sales to keep their job. Let’s start by giving their correct title so people know what to expect…’to be sold to’, after all as IFA’s we have to justify our adviser label.

  45. While it is true that there a few good advisors in Bancassurance, the fact is that they usually get “managed out” when they do not hit their performance targets, there is an aggressive and pressurised culture within many banks, and those who throw unsuitable products at customers where they are only looking to their own personal interests should be dealt with, regardless of whether they are IFA’s or tied agents. There is going to be a problem getting the public to pay for a service that has previously been perceived to be “free”, and a moral dilemma, because those who most need advice may not be able to pay for it.

  46. I worked for major bank for 16 years – last 4 as an advisor – now been 10 years as whole of market mortgage broker – I would agree that there are good advisors in banks and bad – same as IFA’s – however as an advisor in the bank we were never referred to as advisors rather “Sellers”!! – we had to do minimum of 14 appointments a week and had to sell at minimum 1 pension and 2 protection policies a week (otherwise verbal warning – this was the same for amount of appointments) – Mr Fanks you say get rid of commission – what about the banks getting rid of bonuses (same difference) – When I worked for the bank I was made a aware that one of the top “Sellers” received a bonus of over £100K for 1 quarter on top of of his salary which I understand was in the same region (at the same time he had failed his annual pension reauthorisation twice) – he did alot of investment cases (did the bank look after him – yes of course) – bet he wasn’t targeted for 14 appointments

  47. Charles Bunbury 19th March 2010 at 10:14 am

    Dear Hector

    Or should I have said Dear Protector, until FSA.GOV.UK or possible CPA.GOV.UK should there be a change in government is no longer above the law. We will not stop reading this type message, product suitability too late, banks, FSA to crack down on banks. What about FSA.GOV.UK compensation all those who have suffered because of mistakes made by FSA.GOV.UK.

    On the 30 March 1999 Anthony Hilton City editor of Evening Standard wrote. “I think it only fair and reasonable that Imro should have a right of reply to criticisms levelled at the organisation in these pages last week. It is disappointing that in taking this opportunity, Imro fails to address the substantive point at issue.

    The purpose of the report was not to show that it operated its enforcement procedure through a mixture of bullying and spiralling costs. Rather it was to make a case against the continuation of STATUTORY IMMUNITY for the regulator, and particularly for the Financial Services Authority. My point was that if there are circumstances in which the regulator oversteps the mark, then the wronged individual needs to have the opportunity of redress before the courts.”

    Until statutory immunity is removed from FSA.GOV.UK or the CPA.GOV.UK assuming there is change of government nothing will change. FSA to crack down on banks and product supervision is acceptance that FSA.GOV.UK got it wrong massively. How about starting with an apology to the thousands of IFA, PR, Mortgage Broker and those in front line who have been destroyed by what is in my book STATE BULLYING

  48. Sants said: Wherever there is the potential for incentives to produce distortion, if it is within our regulatory remit, we would look at it. However we also have to bear in mind our resources and also the ability of the industry to absorb change.”

    Does he mean that he’ll let the banks off if he thinks it might be too tricky for them to change the habits of a lifetime – I do hope not.

    Breath bated.

  49. I used to work for financial services part of a major bank and it was the incentives that got us going also there was and still is a culture of selling products that gave the banks and employees the most lolly! It is purely a numbers game. I also noticed that when a customer came to the Bank, he was most likely to sign up to anything because it was the trusting “Bank” that was giving advice and likely to take up the advice and keep away from those commission hufrom the Bank and not from those commission hungry insurance salesmen! Most people STILL trust the banks! NOTHING WILL CHANGE!!!

  50. Funkmeister Sants (Bonus) Appreciation Society 19th March 2010 at 11:05 am

    … anyone noticed in the last para that the Funkmeister Sants says that the regulator ‘OUGHT to be interested in all areas where incentives are having a potentially distorting effect on advice’

    SORRY … ought to … ought to …

    He’s the head of the regulator for God’s sake …

    Lemme refresh the Funkmeister’s memory on the (recent) issue of knocking commission on the head for GPP advice … in favour of ‘consultancy fees’

    ‘Ought to’ didn’t really apply there then??

    Nor in most of the RDR objectives.

    Commission vs fees. Mmmm.

  51. “.It is a deterrence that is axiomatically proactive and causing extreme incentivisation”

    Ah right ….I’m presuming this comes under Treating the Customer Fairly rules then does it Mr Sants? Introduced to champion the cause of the consumer at no little cost to every financial services in the industry…

    Pity the major players like the Banks have been allowed to completely gloss over this part of the sales process and do exactly the opposite…out of your own mouth as well!!!

  52. Nothing new here – a blind eye was being turned to this practice for too long.

    2 examples – I applied to Lloyds Independant Arm 4 years ago. They admitted I needed 4 sales per day (in branch) and it wasnt really ‘best advice’ but forceful positioning.

    Plus – I used to be an adviser with BBBs – enormous sales pressure to perform. Bawled out every week for not selling enough policies. At one stage regional office were so worried about complaints that we got a phone call to (literally) ‘burn all the fact finds’.

    Best advice?. Banks/building Societys work under an ‘implied’ threat that if you blow the whistle references are verbal as well as written and you will never work in the industry again.

  53. “consumers need to have a more realistic expectation of the outcome of advice… it is a forecastand will not always be right ”
    The FSA have spent years encouraging people to be suspicious and to believe they MAY have been missold.Hence a horde of ambulance chasers urging consumers to jump aboard the compensation bandwagon under the pretext that “you have nothing to lose”
    The cost to the industry in covering our backsides against such actions whether real or imagined or not even thought of yet has been enormous. Who has benefited in the long run?
    Not the consumer, thats for sure.
    They may have made a few bucks from an endowment claim but they, along with the rest of us will be paying for all the bull we have had to deal withfrom now until eternity.

  54. Surveys increasingly show friends & family now rank higher for financial advice than banks and IFAs. More people prefer Financial DIY than use an adviser and go online. Understanding the structure of the finacial advice market is the first stage for all concerned (regulator included) – and especially how consumers seek financial advice and information online.

  55. Funkmeister Sants (Bonus) Appreciation Society 19th March 2010 at 5:36 pm

    Re: John Gilbert [2-51]

    Sad part is, I can recall a few examples of when families have cost clients lotsa brass because they haven’t appreciated the full legislative/tax implications – and it’s a SCARY SCARY TECHNICAL/LEGISLATIVE/LITIGOUS world out there!! Oooh, yeah … …

    In one case it cost the client tens of thousands of pounds, and the other slightly more (hundreds of thousands) … ah, the joys of IHT planning, eh??

    … yet seen plenty of (good) cases where holistic planning has saved tens of thousands in tax (on paper at least!!). Polish that halo, guys!!

    People still see the ‘Richard Hilman’ effect unfortunately … all IFAs being ‘shifty’ ‘n that.

    Sad, really!!

    Good weekend, one & all … …

  56. I have recently joined the IFA community. I am now advising clients rather than selling to them. After a rough two months in the Credit Crunch dark days – I was threatened with disciplinary action if I didnt start investing money – this came after exceeding target for the previous year! That is the reality – to keep your job you have to be prepared to sell to people who dont have a need or an understanding of what it is they are signing up to….I just couldnt do it and sleep at night.
    Bankassurance should be made illegal as it stands – you only need to look at the Clydesdale advisers who have just been taken off the road for alleged malpractice to see that the banks’ business model doesnt work for the client – the whole model needs to be dismantled and a fairer one to the client put into its place.

    PS Yes I now have clients – not customers!

  57. It’s a root and branch issue, from the top down all they understand is sales, the advice is just made to fit the product they want to sell today,with no enduring help. They treat all non core products in the same way as core the model is bust it serves no one, but the volume is there and the banks and product providers do not change.

  58. alastair thomas 22nd March 2010 at 11:49 am

    could this be window dressing…. never

  59. Banks should not be able to reccommend their own products since this represents a clear conflict of interest. They should be independant or pull out of the market. I worked in a bank and its a pressure coooker of sales targets, its designed to serve the shareholders not the clients.Tied bank assurance sales should be stoppped.

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