The FSA’s recent report revealed how high-volume, target-driven bonuses and pay structures can motivate bad practice.
This is no surprise to you and I. The two most quoted examples of their findings include a sales team where bonuses were multiplied up to eight times for cross-selling protection products and a firm which ran a ‘super-bonus’ competition, where the first 21 people to make the required number of sales earned up to £10,000.
The FSA said: “We are considering whether we should change or strengthen our rules in this area. We will be closely monitoring and revisiting the firms that have the greatest improvements to make.”
The Co-operative Bank and Barclays have announced that all incentives which reward volume of sales will be scrapped, in favour of schemes which concentrate on quality of customer service.
The Co-op Bank says:“A customer walks through the door[of the bank] and staff decide they are going to sell that customer a credit card whether they like it or not, because they have a target to sell credit cards that day. It is the wrong way for banks to approach it but that is what happens.”. Of course this is right.
Martin Lewis piles in:“While bank staff may be called ‘advisers’, that should read ‘salesperson’. Remuneration is based on cross-selling products and often structured to ramp up sales with cliff-hanger rewards. This has led to calculated misselling being a constant part of the financial services landscape”.
Calculated mis-selling? This is headline grabbing and almost certainly exaggerated.
It is clear why mortgage intermediaries shouldn’t be tarred with the same brush as some errant providers. The cornerstone of what we do is operating impartially in terms of the products we advise on and recommending the most suitable product based on what is right for the customer.
We advise our clients to consider protection and insurance not because it generates income but because it is the responsible thing to do when clients are embarking on one of life’s most serious financial decisions.
Association of Mortgage Intermediaries chief executive Robert Sinclair says it was unlikely the FSA would ban mortgage procuration fees and commissions on protection products. He says: “We are not aware of any intention to remove commission from the mortgage and insurance markets but firms should review their existing structures to make sure that they do not have trigger points or minimum standards which encourage advisors to make sales when they might not be appropriate to do so.”
I agree; our goal must clearly be to strike a balance between quality of service and sales numbers. Incentivising either is fine, so long as we are clear on what constitutes quality advice and customer satisfaction. It is our responsibility to ensure that appropriate measures are in place to control standards and to make advisers clear about the risk of incentives influencing advice.
The serious reality is that there still exists an enormous protection gap in the UK, in terms of low take up of life insurance: misguided consumer or regulatory backlash against adviser incentives threatens to leave thousands more families unprotected.
Rob Clifford is chief executive of If I Were You