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FSA sets out good and bad practice on sales incentives

Martin Wheatley 480
FCA chief executive designate Martin Wheatley

The FSA has set out examples of good and poor practice firms should consider when reviewing their sales incentives schemes, including a case where staff plotted to overcharge a customer in order to hit sales targets.

The regulator has published its final guidance on sales incentives today following a review last September which found 20 out of 22 firms operated incentives schemes which increased the risk of misselling.

In its feedback statement, also published today, the FSA said respondents had argued it was not just financial incentives that led to to misselling, but also a culture driven by sales targets.

Respondents said staff can be pressurised through excessive reporting of sales results, being forced to stay at work until they have booked a certain number of customer appointments, and threats that employees could lose their jobs if targets were not met.

The FSA expects firms to review their sales incentives schemes and pay redress where consumers have suffered detriment.

One example of good practice included the final guidance was the immediate removal of sales staff from incentive schemes where there were serious issues with the quality of the advice given. Another firm mystery shopped its face-to-face sales team and recorded the sales conversation which was then reviewed by the company’s quality monitoring team.

Other good practice examples include monitoring the sales patterns of individual staff who are selling the most products or represent a higher risk of misselling, and making a senior manager accountable for representing customers’ interests in the way incentives schemes were designed and reviewed.

Among the poor practice highlighted by the FSA, the regulator cited one firm where sales staff were paid a bonus based on the amount the customer paid for the product. The FSA found staff colluded to intentionally overcharge a customer to help hit their sales target. Ahead of calling the customer, the salesperson said: “This is going to make my target… I will end up with about a thousand pounds… We need to ring [the customer], I will do all the talking [and] you confirm the price.”

In another example, one firm doubled the monthly bonus for staff who complied with sales processes as long as there was only one mistake. Errors such as getting a customer’s name wrong were treated the same as misselling, meaning staff could still have their bonus even where they had missold.

Another firm sought customer feedback following a sale, but rather than testing if the correct information was provided clearly, the firm asked customers yes/no questions such as whether the product features were explained properly.

Financial Conduct Authority chief executive designate Martin Wheatley says: “Finalising this guidance is important because it gives financial firms a clear idea of what we expect from them and how they should manage their incentive schemes. It also marks a key step in changing the culture of viewing consumers as a sales target to somebody to serve.

“If they have not done so already, firms need to look at this guidance now, work out how it applies to them and what they should do differently. We remain open-minded about whether or not new rules are needed to ensure consumers get a fair deal, but the answer to that question will ultimately come from the industry’s response to this piece of work.”

The FSA plans to carry out a wider review of how firms have implemented the guidance later this year.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Re paragraph 4. Seems like SOP for Nat West.

  2. Collective sound of eggs being sucked across the IFA world.
    How much does this joker get paid to opine on the patently, mind-numbingly obvious?
    Does the pic at the top remind you of anyone; Tommy Cooper. ‘ I can get rid of misselling…..jus’ like that….uhhhuu uhh huu’

  3. With regard to customer feedback who can forget the classic “Please can you complete this feedback form. Can you think of any reason why you would not mark us as excellent !”

  4. It’s quite scary now in our industry methinks.

    All these people, who have never done the job of adviser (tied or independent) telling us, what we can do, how we should do it, when we should do it, who we should do it with etc etc.

    It’s like being in a bad marriage except if you try to divorce they follow you forever and you are never free of worry (no long stop) in case some chancer tries his luck with a vexatious complaint.

    Will there ever come a time when we can be left to get on with the jobs of looking after the client (customer) needs and just make a decent living at it?

    Anyone thinking of taking a career in financial services needs their head examining by a competent medical professional and if necessary detaining under the Mental Health Act until they are no longer a risk to themselves.

    Why not just ban all financial product sales by any means and be done with it, the public will soon get the message, but I fear it will be too late for remedial action. Once you have killed an industry, it very rarely sees a resurrection.

    If the governments aim is to encourage financial plannint and increasing long term savings, it has failed at the outset, there is nothing worse than NOT being able to help a client do what they want to do because they cannot afford to pay for the advice and ongoing service.

    AND it will get worse.

  5. I look forward to completing the customer feedback form that will, no doubt, accompany my next FSA fee invoice ……….

  6. @ Ned Naylor

    Your pessimism is exaggerated, and there is no need to worry about undue red tape, interference or punitive fines ….. just join Capita or SJP and the regulator will see you right!

  7. If ever I get an invite to a trip to a brewery organised by this lot, I will be declining it. Not sure it would be that we’ll organised!!!

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