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FSA to focus on sales incentives in mis-selling crackdown

by Daniel Grote on Jul 13, 2010 at 16:50

The Financial Services Authority (FSA) is to scrutinise the reward structures firms employ for in-house sales staff as part of a crackdown against mis-selling.

FSA chairman Lord Adair Turner (pictured) told delegates at the British Bankers' Association annual conference that as part of the regulator's interventionist approach it will later this year examine whether firms' sales incentives are well-designed to guard against mis-selling.

It will also investigate whether firms' product development and approval processes are strong enough to weed out inappropriately-marketed products.

'We are examining firms' business models - following the money - to understand the drivers of profitability and the implications of firms' strategies,' said Turner.

'Where we find incentives, structures or products that are likely to lead to poor customer outcomes, we will take tough action, including using our enforcement powers, to ensure that customers are protected.'

Turner said that the FSA's previous approach, which concentrated on enforcing fair disclosure in sales processes, had failed to stop mis-selling and large numbers of complaints about financial products, and that a more pro-active regulatory regime was necessary.

'It became increasingly obvious that there are problems in retail financial services which were not going to be solved simply by demanding fair disclosure in the sales process,' he said.

The FSA's focus on sales incentives will form part of the regulator's increasing examination of 'industry economics' as it moves towards the UK's new financial regulatory system imposed by the coalition government.

Financial regulation will be split between the Prudential Regulatory Authority and the Consumer Protection and Markets Authority (CPMA), and Turner said that as the FSA moves to the CPMA it will look at pricing issues.

'The FSA has in the past stressed that "we are not a price regulator". But we have always known that high margins can be a warning sign of customer detriment,' he said.

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24 comments so far. Why not have your say?

Chris F

Jul 13, 2010 at 17:02

I give up. I honestly give up.

I have seen countless problems over the years caused by "incentive schemes" and bonus cultures, whether in high pressure bank sales, commission and bonus driven "advisers" (tied or independent) and loan and mortgage providers.

Where has the regulator been all this time? Not just the FSA, but the PIA before it and FIMBRA and all of the other quangos.

Now that so much damage has been done - especially by the banks - they decide to "look at" the systems that cause(d) the damage.

In the meantime, the dishonest and the greedy will continue to rip consumers off and will be laughing all the way (back?) to the bank...

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Michael Fallas

Jul 13, 2010 at 17:03

Well I suppose after a decade or so they have finally discovered that sales incentives can skew the advice process to get more sales !!

Sadly too little too late but they will never admit their own failures, and we will have to pay the redress as usual.

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Anonymous 1 needed this 'off the record'

Jul 13, 2010 at 17:07

These people are so far behind the game it is a joke!

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Scared stiff of reprisals 1

Jul 13, 2010 at 17:10

Why dont the FSA liaise with the Providers. They can tell them a few stories I am sure. The Banks may be a good place to start, but hey what do I know I have only been in the industry 34 years and am not paid the big bugs to be able to sort such issues out.

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Tim Page

Jul 13, 2010 at 17:11

This is not really new. As Callum McCarthy said at Gleneagles "incentives matter". The problem is that RDR and related activity has focused too much on firm-level incentives. This switch in focus to individual advisers, whilst late, is atleast welcome.

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Dave Greenhill

Jul 13, 2010 at 17:13

Let me give you an example:

A client referred me to his father who had just been sold something and he wasn't sure if it was right, but he knew that I would be able to tell him.

His father was retired with a reasonable pension of approximately £1,200 net per month. A tied agent had sold him a stocks and shares ISA - for £1,000 per month!!! (Apparently it would simply revert to a unit trust once his allowance had been filled and continue at that rate).

My understanding of that particular provider's procedures was that there were incentives to the advisers for producing monthly premiums. So a full ISA of say £7,000 at the time provided less kudos than one of £1,000 per month over 7 months. I don't know what that kudos actually meant to the adviser in terms of incentives.

I hope that this clown got his annual target before I got involved, because the premiums were refunded pretty quickly thereafter!

Sadly however, the FSA are probably the last people who are qualified to pontificate over incentives!

But you know me. I'm just a cynic!

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Jul 13, 2010 at 17:37

what regulate the products... really...say that's an idea!! The general public would be thunderstruck if they realised that this didn't already happen.

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Thomas Kelly

Jul 13, 2010 at 17:46

In other news -

- the racehorse Shergar has been stolen

- JFK has been shot

- The Allies were victorious in the Second World War

I would laugh if it was not for the fact that I remember that these clowns are being 'very highly' paid out of money that comes out of my pocket one way or another.

How much have you been paid to come up with this Mr Turner?

Oh yes and how much of the essential outside consultation company been paid for this too?

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Green Eyed Monster

Jul 13, 2010 at 18:05

"....and Turner said that as the FSA moves to the CPMA it will look at pricing issues."

I could have sworn we were told the FSA was being closed down!

Could Mark Hoban clarify please?

Are you keeping the same clowns or getting rid of them?

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Anonymous 2 needed this 'off the record'

Jul 13, 2010 at 18:07

Well done m'Lord. Incentives generally really do produce greed, inefficiencies and detriment to the client. Does the FSA have a bonus system???

Point 1 finger and 3 will point backwards

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Anonymous 3 needed this 'off the record'

Jul 13, 2010 at 18:29


Its not rocket science.

NEED - What you 'need' to do is simple. Focus your vast wealth, resources, and penal dictatorial powers to rectify your own continual "oversight" and failure to act as 'fit and proper' regulator in regulating the Banks IN ORDER TO PROTECT THE BRITISH CONSUMER!! Remember that one??

OUTCOME - You fail the British consumer - year in year out that you exist

Wrongly you dream of yourself as being the 'champion of the consumer' but deliberately FAIL in your duty to protect consumers and go 'weak at the knees' every time you elect not to regulate the banks first. By applying a light touch / zero sanctions approach to the banks you show where your vested interests lie - i.e. with your banking buddies and cohorts. The only visible signs of protection here are the FSAs top brass (Sants, Cole. Pain etc) wishing to protect their future Non Executive Quango Roles on their future Banking Employer payrolls - we must not bite the hand that will shortly feed us, us being truly 'independent' trainee fat cats.

DUE DILIGENCE Where is your due diligence and when it comes to dealing with the area that is most troublesome to the British consumer - THE BANKS.

Not a regulator in sight to do something about the 20,000 Lloyds TSB Bank complaints in the FInancial Services Sector.

In 'Macro Failure' terms, not a regulator in sight to regulate banks during the credit crunch/ with or without the FSA's and Bank of England's 'pass the parcel' regulation approach - "you have the parcel of blame"..."no, you have it, its not my fault....I'm only here for my 9- 5.00 job to collect my £100,000 salary "

When you talk about misselling in this context the 2% of complaints IFAs are responsible for pales into insignificance.

What about THE OTHER 98% of complaints that IFAs - by a process of high level mathematical equation called 'subtracting' - are NOT responsible for. If it was 98% attributable to IFAs that would be a problem but...AS YOU VERY WELL KNOW...it is not!!!

Yet the 'not fit for purpose' FSA concentrates its mass wealth and resources on attacking its ' pet project' i.e. the destruction of the IFA industry and financial services 'free trade' market


Remember to exempt banks from any TCF obligations and NON COMPLIANT approach and remember to only grind IFAs into the ground for their failure to demonstrate compliance on such a MYTHICAL area. Given it is 'impossible for IFAs to prove innocence on TCF' do please continue to pursue your current policy of bias in chastising the IFA sector and not the banks.


Finally, to defend your position, MR FSA, we the British Consumer [and equally all of your IFA subjects)] challenge you to provide a SIGNED STATEMENT that you are 'fit for purpose' in your capacity to regulate the banks.

If you are confident of signing this, then we will hold a referendum and ASK THE PUBLIC to decide whether you are 'fit for purpose'.

As a former self proclaimed ' champion of the consumer' but now the ' failed champion that never was', we hereby seek ENFORCEMENT ACTION and CLOSURE as the only successful OUTCOME for the much maligned UK Consumer.

Yours faithfully,

Unprotected UK Consumer - "for the journey !!"

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Anonymous 3 needed this 'off the record'

Jul 13, 2010 at 18:52

Dear FSA


If the 'price of failure' of banking regulation is to reward over 83% of FSA staff with substantial bonuses (over and above already high remuneration packages) what is a fair reward for FSA staff if deemed successful in regulating the banking sector to the happiness of the UK consumer??

Now if that's not an incentive to reward FSA staff even higher, what is..??

What possibly could go wrong with this approach?? Order those 'trillion pound' staff calculators now on the FSA inventory...you richly deserve a little 'self indulgence' every now and again (and again)...

Yours faithfully

Still Unprotected UK Consumer - Now on the ground, well and truly trampled by out of control stampeding horses - for the journey!!!

PS - Lasso anyone at the FSA???

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Anonymous 4 needed this 'off the record'

Jul 13, 2010 at 19:40

Don't know about other contributors to the forum but do advisers enjoy having to be paid a bonus/commission to compensate their traditionally below par basic salary? A fairer way to incentivise advisers is perhaps to pay a bonus on annual reviews carried out to existing customers. This would work both ways in that the TCF principles would be embraced, clients would feel more valued and would no doubt show their confidence by placing repeat business. We are still in the old fashioned era of hunting new business and overlooking valued existing customers. Currently, there is no kudos where I work for reviewing a customer and I'm basically told not to waste time.

Contorversial, but why not just pay a good basic salary in the first place to do a proper job?

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Tony Clarkin

Jul 13, 2010 at 20:07

How perceptive of Lord Turner to acknowledge that the FSA's previous approach had failed to stop mis-selling.

How appropriate that these concerns were addressed to the British Bankers Association

Give that man a large bonus!

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Michael Fallas

Jul 13, 2010 at 21:33

You have to ask why any regulator would forwarn banks that they were going to check their sales practices.

It's a bit like a policemen telling a thief he is going to search his house for stolen goods some time soon.

Clearly the intention is not serious and it seems the banks may get off lightly if found lacking.

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Anonymous 5 needed this 'off the record'

Jul 13, 2010 at 21:54

Perhaps all financial products including deposits should have a finacial service and regulation compensation levy linked to the amount being invested/deposited so that the end client of all sales/purchases could evaluate cost of financial protection and value for money of the regulator. Surely this would be transparancy as intended not disgusing these unavoidable costs in the IFA or other distributer/advisers fees/income.

With regard to sales incentives, this is root and branch a feature of the entire industry from product providers through to distributers. Unfortunatly all businesses are comercial and can only pay staff based on profit being driven.

The public are generally not in a position to pay advice fees and associated costs ( with the exception of the wealthy) so unless the UK Government provide a UK wide financial guidance/advice subsidey the rich will always get better advice than the poor. Again simple economics which applies to every other profession.

The Rich can get better Legal / Accountancy /Medical solutions as they can afford it. Wide spread advice in these areas is only available to the average member of the public if state subsidy exists (legal/medical)

Accountants - ( Benefit of the consumer not the tax man)

Financial Planners / Advisers ( Do we work against the tax man?)

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Anonymous 6 needed this 'off the record'

Jul 14, 2010 at 08:54

How about the one they use at Towry, convert as many ex Edwardjones clients to our prepachaged proposition or lose your job, is that an incentivised sale or what?

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Sam Caunt

Jul 14, 2010 at 08:58

"Turner said that the FSA's previous approach, which concentrated on enforcing fair disclosure in sales processes, had failed to stop mis-selling and large numbers of complaints about financial products, and that a more pro-active regulatory regime was necessary"

An admission of failure. Where is the apology? The FSA still continue with the same staff, same culture, same approach. Until that happens the FSA will get no respect from decent advisers who have known about these failings for years.

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Anonymous 7 needed this 'off the record'

Jul 14, 2010 at 10:27

FSA are quick enough to point the finger at the IFA sector for mis-selling and now moving us towards fees, which the average man on the street in my area cannot afford or is not prepared to pay.

Forgive me for generalising but in my experience it is the banks selling the lions share of inappropriate/overpriced products to the general public, and getting away with it because foolishly most people trust the banks. Yet they contune to do so unchecked and get a healthy bonus to congratulate them.

It is quite revealing when seeing job adverts for adviser roles in the banks, as long as you have sales and targets experience they mostly do not care what qualifications you have!

It's about time the FSA stopped nit picking in the IFA arena and starting looking long at hard at the banks!!

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John Smyth

Jul 14, 2010 at 10:30

How on earth can the new CPMA protect the interests of the consumer when one of it's newly appointed commissioners is ex Barclays another is ex J P Morgan and another is Clare Spottiswood (She who did not acheive much for the consumer when at Ofgen or with Aviva's reattribution).

When is Turner going to see this wart on the new organisations face !

Labour were so stupid they could not see that that was a major fault with the FSA. Maybe the Conservatives don't want to see it because a lot of their funding comes from the financial services industry.

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Dave Bettley

Jul 19, 2010 at 08:37

Perhaps Citywire could send a copy of these comments to Lord Adair and CC every MP with a copy and then who knows a better regime of regulation may be born that is fit for purpose.

I also think that in the interest of transparency the cost of regulation should now become part of disclosure - the public would be mortified at how much they FSA is directly and indirectly costing.

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stephen wright

Jul 19, 2010 at 09:43

The sort of people who populate the FSA and its equivelent in every area of the working world, will only be truly happy when they have closed down all sales forces. Without the people who want to sell, the public would remain inactive, or lurch into scams, when they fall for unregulated salesmen.

Fee based? i have seen the lousy advice given by accountants, thank you. It usually involves doing nothing positive, and paying a big fee for being told to do nothing. Many businesses are crippled by their accountants, unable to pay into pensions and saddled with dead money in reserves.

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David Irving

Jul 19, 2010 at 11:44

Words fail me. I suppose the next thing the FSA will be looking at stopping is IFAs making profits. Obviously, profits are likely to influence the sales process as well....

It appears that the only business model that will completely suit them is if we all become charities.

Just a thought. I was under the impression that it was the RDR that was supposed to eliminate bias in the sales process. As the RDR hasn't come into force yet, how can Lord Turner judge its effectiveness? Really, all these pronouncements have the ring of childishness about them.

Lord Turner, wait...... Wait until you've introduced one set of regulations and then assess their results. Once you have examined the impact these regulations have on the desired outcome, then look to tweak them.

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Anonymous 8 needed this 'off the record'

Jul 19, 2010 at 11:57

Was it Barclays who sold a 5 year term Guaranteed growth bond to a terminally Ill man, as reported just a few weeks ago, compensation paid of over £100,000. What was the incentive used to get the salesman to make that sort of sale, God Knows.

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