by Mark Johnston
Sales Incentive Crackdown.
It seems that banks face challenges in searching for profits against a backdrop of compressed margins, enhanced competition and the eurozone crisis pushing up wholesale costs. Therefore many turned to the ethos of profits at any cost.
It therefore became common place for banks, building societies and insurance companies to offer their staff cash incentives in order for them to push selling certain products and policies.
These incentive schemes have paled a role in mis-selling scandals which include the mis-selling of payment protection insurance scandal and a major example of where profits were more important than what was right for the customer.
Thameside wealth director, Tom Kean, said “some examples of poor advice are unforgiveable. My fear is bank customers will be put off from seeking advice”.
After an initial review carried out by the Financial Services Authority (FSA), which found that incentive schemes encourage mis-selling, the regulator announce plans to toughen up on certain sales incentive schemes as they believe that most of them are unfair on consumers.
Adam Philips, chairman of the Financial Services Consumer Panel, says “it is very disturbing that customers are still getting poor advice”.
This said, basically the financial watchdog wants firms to move away from structures that reward staff of the number of products sold to ones that reward staff for doing what is essentially best for the customers.
Martin Wheatley, chief executive of the Financial Services Authority (FSA) wants to ensure that banks finally put customers interests ahead of profits.
Some industry experts have argued that it is not just financial incentives that lead to mis-selling, but it is also the current culture which is driven by sales targets.
MoneySavingExpert.com, a comparison website, founder Martin Lewis, suggests that “problems with in banks sales cultures go beyond incentives and stem from poorly trained staff ‘dressed up as advisers’ who do not have the moral compass to know they are mis-selling”.
The key point to all this is that firms need to construct business models where fair treatment of customers is central. The regulator wants to change the financial sector’s culture of viewing consumers as a sales target to somebody to serve.
Despite the failings that were found in sales incentives the Financial Services Authority (FSA) has said it does not want to ban incentives altogether, but wants to make it clear that selling products and policies should now never be sold at the customers expense and that risks should be managed properly.
This new way of working would mean that consumers could be confident that they are being sold a product for the right reasons.
An example of good sales practice would be to monitor the sales patterns of individual staff members who are selling the most products and also making a senior manager accountable for representing customers interest in the way incentive schemes are designed and reviewed.
Experts believe that the challenge will be in delivering such a significant culture change with in banks and the wider industry as financial incentives are in many cases central to how businesses operate.
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