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Market watch: Analysis of the incentives clampdown

  • 12/09/2012
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Will the FSA’s crackdown on incentives for financial sales staff, starting with the consultation launched last week, reduce the risk of mis-selling?

Examining the issue in this week’s Market Watch are:


Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, who said that broker firms should look at their own practices to ensure there is no commission bias.

Bernard Clarke, spokesman for the Council of Mortgage Lenders, insists that there needs to be a cultural shift, from a sales to a service culture.

Richard Adams, managing director of Stonebridge Group, added that the FSA’s crackdown on mis-selling is a project similar in magnitude to that of the RDR and MMR.

Robert Sinclair, chief executive of the Association of Mortgage Intermediaries


The steps to change the culture in banks on reward and incentivisation of their staff will require a fundamental shift in the way that objectives and targets are set and staffs are managed. It will need a total change to HR processes. The FSA has stopped short of banning commission, as under European legislation payment by commission is still an accepted part of the landscape.

There will be a new focus on ensuring that there is no product or provider bias. That the consumer has a genuine need and desire for the product. That retention rates are at the levels expected and that where there are complaints or findings of poor practice then it does impact on the reward and incentives paid.

Broker firms also need to look at their own practices. Are they showing any commission bias? Are they seeing claw-back and is this evidence of any issues. However, as brokers tend to look across the market and recommend the most appropriate solution then they are less likely to fall foul of many of the issues. It may be that following this guidance some banks and insurers might decide that using third party distribution rather than direct might be a better solution- opportunity could be there for the taking.

We have until the end of October to reply to this consultation, and AMI will be ensuring that the broker view is heard.

Bernard Clarke, spokesman for the Council of Mortgage Lenders


The FSA has made a clear statement of intent, and the financial services sector must expect a rigorous and thorough review. Based on its initial findings on incentive schemes for sales staff – with one firm already referred to the enforcement division – the FSA believes there are serious weaknesses, with considerable potential for mis-selling. There can be no room for complacency for any firm.

The FSA has spoken of serious failings at insurers and investment firms, as well as at banks and building societies. The regulator is targeting “dysfunctional incentive schemes” across the financial services industry, and sees potential problems in any firm where consumers are viewed as sales targets.

CML chairman Martijn van der Heijden sounded the alarm on areas of concern three months ago. At our annual lunch in June, his speech called for a cultural shift, from a sales to a service culture. The industry needed to be more honest, more transparent and more intelligible to its customers, he said.

Somewhere in the past, the industry had sleepwalked into becoming a commoditised sales business, rather than a customer relationship business. Those sentiments have proved to be an early warning – and not just for lenders.

Richard Adams, managing director of Stonebridge Group


The first point to make on this ‘crackdown’ is that I don’t believe it is merely aimed at just the banks, building societies, insurers and investment firms. Reading the comments from Martin Wheatley it’s clear that the regulator views this as a project similar in magnitude to that of the RDR and MMR – this means that all financial services firms will be under scrutiny which could make for a number of interesting changes when the final rules are published.

Given what has happened in the recent past with the huge amounts of compensation paid out for mis-selling, one can’t believe that the banks in particular are going to allow these sorts of sales incentives to continue. In that sense there will be a large degree of self-regulation going forward as the banks won’t want to risk the regulator’s ire and set themselves up for even bigger pay-outs.

In terms of a potential mortgage context, I suspect that all advisory firms will be closely reviewing how they pay and incentivise advisers. I doubt that we will be untouched by such a project.

As for mortgage/protection mis-selling I am still of the opinion that a register of individual mortgage and protection advisers would do much to reduce the number of ‘rogues’ in our sector and therefore cut down dramatically on the potential for mis-selling.

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