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Let’s end the sales bonuses that encourage bank mis-selling

Today Martin Wheatley, future head of the Financial Conduct Authority, announced how he will tackle poorly designed incentive schemes that can see banks selling products you don’t need. He’s here to tell us why…

Why is it that every time I walk into the bank to do something simple, 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, 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.

We, as the regulator, intend to change this culture of viewing consumers simply as sales targets and I’m 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.

Incentive schemes drive bank mis-selling

Bank’s CEOs are ultimately accountable for the way their staff are incentivised, so we expect them to take a real interest in fixing this.

The bonus-based approach has played a role in many scandals we have seen over the years. Incentive schemes on payment protection insurance (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?

I want to draw a line in the sand here, and use the report we are publishing today to set out our expectations.

What we found is not pretty. Most of the incentive schemes we looked at were likely to drive people to mis-sell in order to meet targets and receive a bonus, and these risks were not being properly managed.

Tackling bank sales incentive schemes

Today marks the start of a programme of work to reduce these risks, which the FCA will take forward. This will involve further supervisory work, a wider review of incentive schemes, enforcement proceedings, and a possible strengthening of our rules.

We know this isn’t an easy job and we can’t do it alone. Making such a change is going to take time and so today I am asking senior bankers, compliance officers and consumer groups like Which? for their support.

Ultimately, banks need to make these changes for you, their customers, so that you’re happy and ultimately their businesses will do better.

Do you get annoyed by bank staff trying to sell you products you don’t need or can’t use? Do you think changing the way sales staff are incentivised will help you get a fair deal?

Which? Conversation provides guest spots to external contributors. This is from Martin Wheatley, managing director of the FSA and future head of the FCA – all opinions expressed here Martin’s own, not necessarily those of Which?

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Here here. In my experience, management need “targets” that can be measured as a means of managing/appraising staff. Gone are the days when a manager would know if a member of staff was doing a good job. And staff would end up concentrating on targets to the detriment of other parts of their role, just to get what they considered to be there’s anyway.

I had a terrible time implementing targets in a software company, I was told to measure an employees work rate by counting the number of issues they had fixed. What a stupid idea, the best person would be given the hardest issues and therefore fix the fewest number, but would be doing the most responsible work and be the most valued in my team, but the targets would not take that into account. STUPID. Senior management have a lot to answer for.

digiconvs says:
5 September 2012

To end the sales bonuses will actually work in favour of the banking industry, as consumers are going to be happier. Simply because they’re genuinely going to be listened to, as opposed to be seen another bonus. Today’s customers are savvy and well aware of their needs; they can in fact make more informed decisions if they’re let alone.

If banks invest half of the time they commit to training staff on how sell things to people over the counter, commit to customer service, high quality delivery and queue management; banking reputation will be improved massively – without a need for any PR campaigns.

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Couldn’t agree more – Initially my original bank was helpful – always looking to help me achieve my potential future. They were so good – I kept the same branch even though I moved many miles away. Then they became greedy and I became a number not a client. I left. The on-line bank I now use treats me as valued client – never tries to sell me anything if I get in touch – though their newsletter does.

Sales Bonuses have led the way to pressurisation of the customer and changed the ethos of Banks.

David Offord says:
9 September 2012

i am a retired solicitor, The bonus incentives now deplored are nothing new. With the acquisitive attitude of mind encouraged by the Thatcher government many firms including banks,insurance companies and building societies took advantage of their short sighted customers. These were told they could borrow multiples of income far greater than previous generations had been allowed.They were told they could afford to do so because the loans would be over longer periods (thus earning the lenders more interest) they did not need to repay capital and so the monthly payments were less and of course the lenders would arrange life cover on a Endowment basis so that the capital would be repaid at the end of the loan period. A little later when the Government modified the State’s cover for Mortgage interest and there was a danger that the fish might see the hook the insurers/lenders came up with PPI.

How to get the borrowers aware of all these “goodies”? Why,of course, the staff must introduce them to the borrowers,now regarded as mere consumers of the financial products which would earn profits for the lenders the like of which traditional retail banking had never seen. The staff knew little about the true merits (none really) of these innovative products but were trained sufficiently to become sales personnel but not enough to have a professional attitude. In any case the commissions for sales were such that even those who knew the consumers (or perhaps by this time the “marks”) would get a rough deal that the anticipated returns on the Endowment premiums were hopelessly overoptimistic and that the chance of a payout on the PPI policy was for many who bought them unlikely or impossible were seduced by well lined pockets into leaving their conscience
out of the equation.
In order to keep the bonus driven profits rolling in the banks etc sought to widen their markets still further. No need to prove you income,oh no; in return for higher interest rates just self certify. Many who had new businesses or precarious sources of adequate income could benefit. So could the downright liars fools and fraudsters.By this time the pressure to sell more and more and so earn more and more bonuses was such that most pedlars of these dubious products no longer distinguished prudent lending from reckless risk and what is more did not care.
The amounts being loaned were not sustainable within the lenders resources. Never mind borrow short and lend long! Hence LIBLR used as not intended.To cover that unsustainable notion till longer term profits were made profits must come over from investments
In the meantime the money generated on the moneygoround were invested or rather gambled on all manner of investment markets/products which promised high returns for greater risk and then in an effort to spread the risk the greedy bonus seekers of high placement entered upon the final lunacy of Sub Prime infected Bonds which were so “clever” that they did not understand that the house of cards they had built now had subsidence issues!

We all know the outcome.

If high salaries incentivised by prudent lending and knowledgeable risk taking had been the norm instead of bonuses/commissions based merely on the paper “value” of products sold and “deals” done then it is clear the present mess would either not have occurred or would not be as intractable,because the level of debt all round would have been smaller.