The mock distinction between a financial adviser and a salesman is at last under attack from consumer champions who warn that sales incentives have led to many of the mis-selling scandals faced by the industry.
The Financial Services Authority (FSA) has told financial firms that it is time to end poorly designed incentive schemes that too often result in customers being sold products they do not need or cannot use, while boosting the earnings of the sales person.
Martin Wheatley, managing director of the Financial Services Authority (FSA) and chief executive officer designate of the Financial Conduct Authority (FCA) said: “Why is it that every time I walk into the bank to do something simple, like pay my credit card bill, the person behind the counter asks me if I would like to extend my credit, take out more insurance or look at their competitive mortgage rates?
“When did this happen? Banks for me used to be a service – a place where you would go in, stand in a queue, have a pleasant chat with the clerk and go about your daily business. Some time ago, this changed – financial institutions have changed their view of consumers from someone to serve to someone to sell to.”
The FSA has looked at financial incentive schemes offered to staff by 22 banks, building societies, insurers, and investment firms, and uncovered a range of serious failings, including:
● One operated a ‘first past the post’ system where the first 21 sales staff to reach a target could earn a ‘super bonus’ of £10,000
● Basic salaries for sales staff at one firm could move up or down by more than £10,000 a year, depending on how much they sold
● Another firm excessively incentivised one product over another, therefore – despite claiming to offer impartial advice – there was a clear risk that its advisers would sell the product that earned them more money. The FSA also found firm made more money from sales of that particular product than any other, paying bigger incentives to sales staff
● One firm allowed sales staff to earn a bonus of 100% of their basic salary for the sale of loans and PPI, but the bonus was only payable to those who had sold PPI to at least half their customers
The FSA expects firms to consider whether incentive schemes increase the risk of mis-selling, review whether their controls are adequate, and address any inadequacies – including changing the scheme and paying compensation to customers that may have been mis-sold.