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FSA incentive crackdown: time to review your structure?
by Danielle Levy on Jan 30, 2013 at 08:12
The Association of Private Client Investment Managers (Apcims) has called for greater clarity from the regulator on how wealth management firms should apply the FSA’s finalised guidance on financial incentives.
While the trade body supports measures to ensure incentive schemes do not promote mis-selling, it said the FSA’s final guidance on incentives lacked clarity on its exact application to the wealth management sector, and appears geared towards bank staff.
The guidance is based on a review of schemes across 22 firms – including banks, building societies, insurers and investment businesses – that uncovered a range of serious failings. These included the failure to recognise that staff are being driven to mis-sell; not managing those risks properly; and sales managers having clear conflicts of interests.
Ian Cornwall, director of regulation at Apcims, pointed out that a large portion of the examples quoted in the guidance are bank-centric, making it hard for wealth management firms to respond.
‘Our main concerns are that the basis of the final guidance is for bank staff selling bank products to customers,’ he said. ‘If there are issues relating to financial incentives in our sector, then we are keen to hear them and address the concerns of the FSA. It is a shame the guidance is not broken down into individual sectors, with the FSA noting what their concerns are in relation to each sector.’
The FSA said its guidance applied to advisers and those in discretionary and non-discretionary investment management roles.
Incentive bias between products, where staff are remunerated purely on the revenue they earn, featured among the structures the regulator was concerned by.
Likewise, the FSA found some schemes deducted compliance costs from sales revenue for future business if revenue passed a certain threshold, effectively increasing earnings.
The guidance noted that pressure at some businesses to hit sales targets was so strong that some staff were mis-selling for fear they would lose their jobs.
How firms are reacting
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