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MM leader: Sales incentive crackdown must focus on senior staff

The FSA crackdown on poor incentive schemes sees a welcome shift in regulatory focus to address a major systemic problem which has been ignored for too long.

A warranted criticism of the FSA’s retail agenda has been its failure to get to grips with an unhealthy sales culture within many banks, which has led to a raw deal for huge numbers of consumers. Compare this with its heavy-handed treatment of the, mostly, much smaller issues in the IFA sector.

Two messages in particular stood out from Financial Conduct Authority chief executive Martin Wheatley’s speech last week. First, he called for a change in behaviour “from boardroom to point of sale”.

The incentive schemes and pressures applied on bank sales staff emanate from the top of these organisations and that is where the blame should lie. Looking back at bank advice misselling scandals in recent times, for instance, Barclays’ advice failings around the Aviva funds, Credit Suisse’s structured product misselling and Coutts’ sales of AIG products, no senior management were held publicly accountable for the failures.

Until those at the top are punished for the behaviour of the staff carrying out their orders in the branches, it is difficult to see how Wheatley’s proposed banking renaissance has any chance of becoming a reality.

Incentive schemes are, of course, not being outlawed and they will continue to be the backbone of many firms’ business models. But some of the startling examples uncovered by the FSA emphasise the rotten culture that senior staff have allowed to develop below them and the need for regulatory action.

Alongside a firm crack of the whip, it was great to hear a senior regulator use such a speech to emphasise the need for people to save more and protect themselves and their families and the dangers to individuals and society of not doing so.

Without trust and confidence, you are never going to convince an already cynical public to engage with financial services.

But this overhaul of dodgy sales practices should accompanied by a debate about how to ensure a healthier regulatory balance between protecting people from misselling and the real dangers to consumers and their families of not saving or buying protection. Regulatory policy has for too long been warped by a failure to acknowledge the latter.



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

  1. Bernard Levin in a Times editorial 25 years ago wrote blaming the commission hungry salesman is like ‘ blaming the surgeons scalpel rather than the surgeon’. Anyway progress not perfection.

  2. Having work as an adviser at a bank, I have seen the pressure put on people to achieve targets.

    There was a “no excuse” policy and the main Key Performance Indicator was reaching target. If the target was not reached, it did not matter that the adviser had no complaints, no compliance issues, had passed all internal/external test and a happy client base.

    Those that hit target first were congratulated and held up as examples and I remember one email from the director offering a big bonus to anyone who could beat the sales of a previous employee.

    On one occasion, one of the salesteam recommended an elderly couple put 2 million pounds into an insurance company IHT plan. A plan that had to invest in the insurance company’s own limited range of funds, using their standard trust and taking full commission.

    For such a large trust case, I would have expected additional legal counsel’s opinion and I found the file. One letter on two/three sides of paper, an woefully inadequate report, with technical mistakes and certainly not the best solution for the client.

    Result? Commission 105,000 pounds and congratulations from the management and a ticket to the offshore sales conference.

    Of course, when things went wrong, it was the adviser that was hung out to dry/suspended. Not the boss! Don’t tell me that some of the management did not know that certain salespeople were a compliance risk but, as long as the sales came in and no one complained then all in the garden was rosy.

    I recommended unit trusts and fee based advice at the time, I realised that the options I had were to start selling with profits bonds (full commission), structured products (AIG etc- as a ‘replacement’ for deposit accounts), recommend drawdown instead of annuities( where annuities were likely to be the best option for cautious/unsophisticated clients) or move to a different firm.

    I chose the latter.

  3. The tone, culture and actions of an organisation are set by the top, then enforced by the spineless in the middle, on the hapless at the bottom. Fred the shred was the living example of this. Have we learn’t nothing from the collapse of the RBS group ?

  4. In my final year with a bancassurer I saw one colleague attempt suicide, 2 have nervous breakdowns, 2 pushed into retirement, 3 ‘managed out’ under ‘performance agreements’. The pressure inflicted on all to reach targets to help people look after ‘their families, futures and finances’ was the main reason. The manager responsible then moved to Nationwide. Hiding in a mutual won’t change his psychopathic behavioiur. Expect more casualties.

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