The Financial Services Authority (FSA) have called for a clampdown on sales bonuses and commissions offered for the sale of financial products to help stop them being mis-sold.
The FSA announced today that they are working on a major initiative to combat dysfunctional incentive schemes which reward the employees financially for selling the customer financial products that they often do not need or cannot use.
Speaking at an event this morning, Martin Wheatley, managing director of the FSA said:
“Why is it that everytime 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.”
“CEO's are ultimately accountable for the way their staff are incentivised, so we expect them to take a real interest in fixing this.”
Martin Lewis, founder of MoneySavingExpert commented:
“The problem isn't that people no longer trust banks and other big financial institutions, it's they're right not to. 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 mis-selling being a constant part of the financial services landscape. That's bad for consumers and the industry.”
Incentive schemes ‘rotten to the core’
Poorly sold payment protection insurance products alone are set to cost UK banks around £8bn in compensation costs. In the midst of the scandal, Wheatley claims that with almost every recent case of a mis-sold financial product, a ‘dodgy’ sales incentive scheme has been involved.
Martin Wheatley went on to confirm that he will be taking the lead on working with the FSA and the Financial Conduct Authority (FCA) to bring in changes which are ‘fairer’ to the customer and enforceable for companies who choose to ignore them.
“We, as the regulator, intend to change this culture of viewing consumers simply as sales targets and I am going to be personally involved in getting this right. This will be part of the ongoing improvements we make to regulation as we seek to make markets work well and give people a fair deal."
"This bonus-based approach has played a role in many scandals we have seen over the years. Incentive schemes on PPI were rotten to the core and made a bad problem worse."
"I expect those running firms to start looking at what their schemes are set up to do. The dictionary tells us incentives are something that incites an action, so firms need to ask what type of action it is they incite. Is it to get the best deal for the customer, or is it to get the best deal for the person or firm selling it?"