Reports of sales targets prompt FMA letter to banks

FMA executive director of regulatory delivery Clare Bolingford signed off on the letter to chief executives warning that it has been four years since the FMA reviewed bank incentive structures (BIS Review).

In the letter she says, the design and management of bank incentive schemes influence how banking staff act and what behaviour is valued. In the BIS Review the FMA described incentives as including variable pay, fixed pay (salary), competitions, and performance management such as how staff are selected for promotion, and how staff are selected for performance improvement plans and, ultimately, termination of employment.

“In December 2018, we asked all banks involved in the BIS Review to implement changes to their incentive schemes to remove incentives linked to sales measures for salespeople and their managers, no later than the first performance year beginning after 30 September 2019. We defined sales measures as measures that are achieved by retail customer sales or referrals, whether at an individual or a team level. This includes sales/referral numbers, sales value and asset or liability growth.

“These changes were intended to reduce conflicts of interest that can hinder the fair treatment of consumers. As you know, we have been monitoring banks’ progress with their actions plans to address the recommendations of both the BIS Review and the joint FMA and Reserve Bank Conduct & Culture Review. In many cases, we are encouraged by the changes that have been made.”

Bollingford goes on to say the FMA has recently received reports suggesting that in some instances, banks have reintroduced sales targets or other changes that are not likely to be in the best interests of consumers.

“We are concerned about these reports and any reports of actions by banks that may result in consumer harm.

“We are now asking you to take the following actions to provide assurance that the incentives you provide to your staff are designed and managed in a way that supports the fair treatment of consumers.”

Banks have been asked to reconfirm that they have removed sales linked incentive schemes by 31 May and reflect on whether staff incentives are aligned with the outcome of fair treatment of consumers.

Comments from our readers

On 3 May 2023 at 6:30 pm Andy the adviser said:

Does that also include volume targets that Advisers must meet to maintain an agency with the bank?

Surely this is not in the best interest of the clients either.

On 4 May 2023 at 7:08 am Pragmatic said:

To throw a grenade into the conversation: it is important to separate ‘sales incentives’ from ‘client best interests’.

Personally I’m comfortable with sales incentives being in place to motivate & reward key staff.

Where I lose my enthusiasm is when any incentive is mis-sold or don’t to the detriment of the consumer.

Let’s not forget that all businesses need to sell stuff to grow & pay the bills (putting bank mega profits to the side for this discussion).

On 4 May 2023 at 11:24 am Murray Weatherston said:

Let me rekindle "best interests" debate.

Everybody throws around that term but it isn't normally defined.

Australia has a "best interests" duty in the Corporations Act. But the term isn't defined per se. Rather the Act goes on to introduce a "safe harbour" set of provisions that if an advisor follows thay are deemd to discharge that duty.

But the plot thickens with Michelle Levy's QAR reprt currently under consideration. She thinks the current safe harbour provisions are a COS (technical term where C=crock, O = of and you can guess what S is) and a new best interests duty (yet to be spelt out) is inserted in its place.

At the same time she thinks banks and other institutions should be exempt from any best interests duty because their salesmen have conflicting duties to their clients and their employers....what a surprise. She thinks instos should be instead subject to a "good advice" duty.

The fatal flaw in both sides of the Tasman as I keep banging on about is the complete unwillingness to separate sales from advice.

But I do agree with Pragmatic, sales incentives are a legitimate form of management in most businesses

On 4 May 2023 at 12:09 pm Amused said:

Hi Andy - 100 percent agree with you.

My understanding is that with the CoFi changes coming in none of the banks will be able to demand a minimum volume target for an adviser to maintain their accreditation. The banks would still be entitled to ask the adviser to complete an annual accreditation test so that they can be sure the adviser is still competent with their policy and products.

Reports of sales targets prompt FMA letter to banks

The Financial Markets Authority has written to banks about staff incentives after hearing that some banks have reintroduced sales targets.

Wednesday, May 3rd 2023, 12:59PM 5 Comments

Comments from our readers

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