Financial incentive schemes are a regular source of controversy across many industries. Rightly or wrongly, they are seen by customers and critics as a potential barrier to impartial advice.
Recent FCA guidance has increased the pressure on firms to ensure their incentives culture does not lead to poor outcomes for customers. So what does this mean for the industry and advisers embarking on a new career?
The FCA assessed the changes brought in by firms and found that while improvements have been made, some smaller firms have not fully understood that certain policies or agreements they have in place could be deemed an incentive.
In response, Bankhall, the professional support services provider, has been urging small directly authorised firms to review their financial incentive schemes. It has also launched an assessment tool to help firms identify any potential areas of concern. The resulting document can help provide evidence that the firm has assessed the risks and put measures in place to manage them, ensuring customers’ interests are protected.
It is likely that financial incentives will remain high on the FCA’s agenda in 2014 and beyond, forming part of its supervision programme. It is important for all firms, regardless of size, to be able to demonstrate they have reviewed their scheme and taken appropriate action to ensure their financial incentive policies do not pose any risks to customers.
Other industries have already changed their policies such as the retail sector. Carphone Warehouse scrapped sales commission for staff in 2009 in a bid to put customer service ahead of personal financial gain, with staff now incentivised on the quality of customer service. It was hoped that this would make the mobile phone industry more ethical and professional.
Could this be the shape of things to come in the financial services industry? There is no doubt that our profession has come a long way in recent years, especially in the wake of the RDR, which has led to higher professional standards. The direction of travel is clear, as are the expectations and behaviours that our whole profession must adhere to. The FCA will be looking to see whether any improvements made have been embedded within a firm’s culture and that this is reflected in the way staff are incentivised.
I always find it interesting to view our profession through the eyes of new advisers. These people have few preconceptions and are not inhibited by the past.
The majority of firms will naturally embrace the FCA’s latest guidance and work to the higher professional standards required. This includes greater transparency and more evidencing of what we do.
I believe that the culture of our profession will continue to evolve and this will be reflected in the way firms incentivise their people. The good news is that quality firms have nothing to fear as they already know that the route to long-term success is by delighting the customer.
Lisa Winnard is HR director at Sesame Bankhall Group