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Bank staff pushing investments, insurance

If you think bank staff are being encouraged to push clients into investments and insurance that aren’t necessarily right for them, you’re probably correct.

Thursday, November 15th 2018, 1:00PM 2 Comments

The Financial Markets Authority has released its review of bank incentive structures. It found bank staff earned $17 million in incentives across the nine banks in the year to March, about 9 per cent of their total pay.

Director of regulation Liam Mason said, after putting the focus on advisers for some time, it “only fair” to look at what was happening with banks.

The review found incentive structures were not well-managed.

Incentive schemes were highly sales-focused, controls seemed to be ineffective at mitigating conduct risks, boards and senior management received little information on the conduct risks associated with incentives and, while banks were making significant changes to their schemes, they did not go far enough.

The banks’ controls were often designed in a way that made it unlikely that they would be effective at identifying inappropriate sales, the FMA said, and poor outcomes were likely to go undetected.

That could mean sales of products that were unsuitable, customers not being offered a cheaper alternative that would meet their needs, sales with incomplete unclear or misleading information, insufficient assistance for customers when there was not prospect of a sale and failure to exercise due care when dealing with vulnerable customers.

Rewards for insurance, investment and home loans were often based on the product value not the number of products sold which meant people were encouraged to borrow, invest or insure more than they might want or need to, the FMA said.

Customers might switch their investment to a bank not knowing fees would be higher, or buy an insurance policy unaware they would not be able to claim.

“The way that banks choose to reward and incentivise their staff is at the heart of the culture that boards are establishing in these firms. We expect banks to ensure they achieve consistently good outcomes for their customers. This includes designing and managing incentive schemes in a way that delivers positive outcomes for customers over the life cycle of the products they hold,” Mason said.

He said FSLAB would help in that organisations would not be able to incentivise staff in a way that did not put customers first, and conflicts of interest would have to be managed.

But the new rules did not go as far as removing the schemes completely, which was what the FMA wanted.

As outlined in its joint report with the Reserve Bank, the FMA wants banks to implement changes to their incentive schemes no later than the first performance year after September 30 next year.

In March, they will be asked how they will meet expectations and their responses will be reported on.

 

Tags: banks FMA

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Comments from our readers

On 15 November 2018 at 3:56 pm First Time Caller said:
Something advisers have known for a long time as weve all had clients moved from standard rates 4 week waits, to 13 week waits with exclusions... Just because its cheaper... when the existing policy could have simply had the wait period extended.

Surely this illustrates there should be a level playing field regarding minimum education (i know that's not a silver bullet) As maybe the VIO's shouldn't get a free pass regarding having education in the aggregate / adequate process (whatever you want to call it)
On 16 November 2018 at 8:24 am Dirty Harry said:
Incentive structures, rewards, schemes, culture... not well managed.

Incentive schemes were highly sales-focused, controls seemed to be ineffective at mitigating conduct risks, boards and senior management received little information on the conduct risks associated with incentives and, while banks were making significant changes to their schemes, they did not go far enough.

These are the quality systems and cotrols that are "equivalent".

This is the "backfill".

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