In the paper, Risks to customers from financial incentives out today, the FSA’s Martin Wheatley (pictured) who introduced the paper proposed that all financial services firms review their sales processes to stop firms “viewing consumers as sales targets.”
As a result, all firms will be obliged to review their staff incentivisation schemes.
The cost benefit analysis for the consultation paper suggests a mortgage firm with 15 to 30 advisers obliged to overhaul its incentives scheme completely could be hit by £25,000 in on-going costs, plus £3,000 in one-off mystery shopping, training and monitoring costs.
However, the FSA also said it does not expect to see a drop in average income for in-house sales staff, just a change to the balance between salaries and incentive payments.
The regulator said: “Although we anticipate some small reduction in sales and profitability of affected firms, this should be due to a reduction in unsuitable sales. The costs to firms, through these lost sales, will be transferred to customers as a benefit from buying more suitable products.”
In another example, a large retail bank with over 500 staff may incur costs of £5,000 a year to enhance its risk-based monitoring for high-risk individuals, such as staff achieving high or atypical sales volumes. The bank could also incur one-off costs of £6,000 to foot extra monitoring costs and another £2,000 to “design and implement reporting systems.”
The FSA offered another example in the form of a building society with 60 or 70 advisers with an estimated £25,000 in on-going annual costs to re-design and monitor incentive schemes and review and risk assess that scheme.