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Will the FSA really get tough on bank advice?

So, once again we are promised a crack down from the FSA on poor advice offered by the banks.

In March, FSA chief executive Hector Sants told the Which? Future of Banking Commission that the regulator was to investigate the effect sales incentives have on the advice given by high-street banks.

Yesterday, Lord Turner took the opportunity offered at the British Bankers’ Association annual conference to let it be known that the regulator would be launching an investigation to ask whether reward structures for in-house sales staff guard against misselling.

Anyone who has read the reams of column inches in Money Marketing and many other titles over the last couple of years exposing the terrible standards of advice offered by some of our high street banks should be able to give Turner a swift answer to that question.

This evidence is backed up by concerns expressed last summer by the Financial Ombudsman Service regarding advice given to elderly customers by bank branch staff. The FOS had received many complaints from elderly people who had gone into their branch to make a withdrawal from a deposit or savings account but ended up with an investment well outside their risk appetite. 

This year’s FOS annual report highlighted a group of cases it upheld involving one high-street institution targeting the sale of investment bonds at older customers who were not suited to the investment risk involved.

One of the biggest criticisms of the FSA levelled by advisers is that it has spectacularly failed to properly regulate and clamp down on the poor advice given by some high-street banks.

Turner yesterday promised tough action against firms the FSA finds have incentives, structures or products likely to lead to poor outcomes.

Of course the FSA has had plenty on its hands since Lehman Brothers crashed in the Autumn of 2008, but questions have to be asked about why this investigation has not happened sooner.

We have seen some action against the banks- two were referred to enforcement for poor complaints handling procedures in April while Money Marketing understands that at least one high street bank has been ordered by the regulator to carry out a section 166 review of business as part of the FSA’s pension switching review.

But despite the deluge of fines, bans and censures that have been flying out of Canary Wharf in recent times, banking advice remains relatively untouched.

Evidence to the Which? Future of Banking Commission from ex-banking staff suggests the same hard-sell mentality continues to take place with excessive pressure put on front line employees.

The Which? commission called for the complete removal of commission for front-line bank staff and enforcement action against the senior management who are putting this excessive pressure on workers. Both seem sensible proposals.

But things are unlikely to change unless the FSA really does decide to get tough on the banks. We shall see.

Paul McMillan is the editor of Money Marketing


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. Do pigs fly?

  2. Not a chance – the banks will be the main providers of financial products to the great unwashed post 2012 (RDR having driven most IFAs up market) so they can’t be too hard on them or the burden on the state will increase (which the country cannot afford).

  3. Andrew Pritchard 14th July 2010 at 4:55 pm

    Asking ‘whether reward structures for in-house sales staff guard against misselling’ is not the only question that should be asked.

    If salaried advisers are put under continuous pressure to ‘sell, sell, sell’ or lose your job, then the reward structures are not relevant. It is the pressure to sell at all costs that cause the mis-selling. Banks are only interested in the sales volume and not the quality of the sale and this will always lead to mis-selling problems. Unfortunately the FSA has never understood this issue.

  4. Forgive me but wasn’t Lord Turner talking about MORTGAGE advice which doesn’t fall within the Financial Services based Investment advice malpractices referred to above.
    Contrary to the current hype most mortgage advice is controlled and does include reference to affordability. The problems in the market are caused by the mountains of credit card / store card debt which is ladled out without any consideration of affordability or ability to repay and which is charged at extrotionately high rates of interest. Why isn’t anybody asking when we are going to clean up this act instead of attacking largely compliant mortgage brokers and lenders?

  5. Lord Standerwick 14th July 2010 at 4:55 pm

    To ‘Flying Pig’ post.

    I hear there is a place full of them at Canary Wharf as most are X-Bankers!

  6. Last December there were 16 regulators supervising Barclays, only on the prudential side of course.

  7. One of my friends worked for Bradford and Bingley for 20 years, was then transferred to Santander, she lasted 6 months. Every morning the staff were made to stand in a ‘huddle’ do the sales rs ra ra and be told their targets for the day. At the end of the day they were held back to explain why they didn’t hit their targets. Heavy sales in every branch. One day I stood in the queue to spek to her and was almost accosted by sales people tryung to get me to speak to their advisers. May I suggest the FSA step out of their ivory tower and visit a few Santander branches to fully understand the concept of heavy sales.

  8. FSA will get tough on the banks for sure,rather similar to being savaged by dead sheep!!.The banks are great pals of the FSA, end of.

  9. That’ll be the day – as referred to in the article, the standard of advice given by Banks is hardly the world’s best kept secret yet the FSA have done precious little so far.
    A friend recently left his job at a High Street Bank because, ” After over 20 years I could no longer live with myself, in recent years, being incessantly targetted to sell expensive and inapproriate products to customers who neither wanted them, needed them nor could afford them.” Sums it up pretty well I should think!

  10. If a bank miss-sells, fine them up to 100% of the total commission earned for that class of business. Maybe then they will be more careful.

  11. Nigel Tinsdale 14th July 2010 at 8:04 pm

    Sants and Turner are just miles off the pace. I believe that their inactivity to clamp down on bank sales frenzies is completely deliberate. Suddenly they are banging on about sales targets being possibly detrimental to the consumer. They have known for years that this is the case but have chosen to do nothing. The FSA recently cited the 2003 Australian Securities and Investments Commission Survey on the quality of
    Financial planning advice as just reason for advisers to have higher qualification as the report found that advice from advisers with higher qualifications was better. Although the authors of the report mentioned that the survey showed that planners with higher qualifications had slightly higher scores on average in the tasks being assessed, the report does not mention the remuneration link in this area. I suspect that there would be a higher proportion of the higher qualified charging fees, which would have a barring on the results as it was also shown in the report that commission led to poor advice. In addition the report also mentions that 26% of the higher qualified advisers gave poor advice! This part on the exam link to advice was so insignificant in the report that no mention was made in the reports conclusions. The FSA seems to have taken the findings completely out of context to help justify their actions on forcing through exam changes in the industry and ignoring the areas that are actually detrimental to the consumer.

    One would think that if the FSA thought that this was a worthy report to help shape the UK financial advice industry then it may take a bit of notice to the reports conclusions.

    What did appear in the conclusions were the statements:

    “The combination of commission-based remuneration and management sales
    targets sits uncomfortably with good practice and professional advice.”

    “that clients’ interests did not appear to be the sole factor in the plan strategy or product selection. They characterised this practice as commission-driven product selling, not impartial advice”

    So commission is bad for giving advice, therefore the FSA is fully justified for scraping commission. However only some types of commission will be banned and in addition other types of commission will just be renamed as a fee that happens to be a percentage.

    So I presume if they had already referred to the 2003 for the exam part then the bods at the FSA had read the rest of the report and conveniently ignored the bit about sales targets, that is, until now as it is getting harder and harder to ignore.

  12. The banks are institutionalised crooks and the FSA (working under government control) have been complicit in turning a blind eye for many years.

    Any attempt to tell it differently is simply ‘smoke and mirrors’.

  13. No. It’s just hot air and horseshit.

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