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FSA incentive crackdown: time to review your structure?

by Danielle Levy on Jan 30, 2013 at 08:12

FSA incentive crackdown: time to review your structure?

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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7 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Jan 30, 2013 at 08:58

Working in Private Banking still boils down to generating revenues - are we really to believe that someone who is popular in the office and does a bit of charity work, but really is only average in their role, is going to be ' rewarded ' more than the star income performer ?? Of course everything will be compliant in terms of sales etc but last time I looked the banks did not have registered charity numbers alongside their names and the sales culture still pervails despite what is might all be boiling down to popularity contests and will only lead to people being even more scared of speaking up and questioning processes for fear of being viewed as a troublemaker.

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Ted Shaw.

Jan 30, 2013 at 10:55

testing name view

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Rob Stevenson

Jan 30, 2013 at 11:34

The FSA do need to bring more clarity to this subject. However, you can't use a remuneration structure alone to compensate for a wonkey business model, poor management, lazy internal compliance controls and a lack of focus on good client outcomes.

One does wonder where the FSA are going with all this. I can understand self-employed structures creating the wrong type of motivation, but balanced scorecards are frequently weighted towards quantitative metrics for those in revenue generation roles. I mean, that's their job right? Using qualitative measures to balance outcomes is sensible but the whole ting needs to be managed by someone.

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Jan 30, 2013 at 11:48

Rob, you hit the nail on the head when you say the whole thing needs to be manged by someone,. Therein lies the problem though - the current scorecard systems are managed by people who themselves are managed by other people whose aim no matter how you dress it up is revenue generation. It can also be very subjective and devisive and is an easy way of favouring those who are friends of managers etc, using hard to substantiate factors which can't be questioned by the person being appraised. At least with revenue targets you can clearly see the results. How do you assess someone on things like teamwork and leadership qualities ?? No numbers to crunch so the old popularity and ' good egg ' factors come in - I have seen it first hand.

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Jan 30, 2013 at 16:45


Surely the self-employed structure which takes 100% personal liability presumably does create the right type of motivation & discipline. If you get paid solely on commission rather than on a PAYE pooled basis far more focus is exerted when it comes to credit discipline, compliance, etc. Haven't the real problems in the crunch really occurred in the bonus culture driven orgs rather than the boutique LLP's?

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Jan 30, 2013 at 17:01

What about the ' partners ' at SJP ????

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Rob Stevenson

Jan 31, 2013 at 08:42

CDL - important not to confuse 'self employed advisers' with 'partners in a partnership' (although I did a pretty good job of confusing them above).

Partners should be subject to a partnership agreement and therefore if the governance is there, the motivation should be towards the success of the partnership. If a firm doesn't care about its clients/customers, no amount of governance will help anyway.

Self employed advisers are different. No vested interest in the firm, just take a % of what they produce. This arrangement creates a client - adviser relationship somewhat similar to red meat - hungry lion.

Employed with 100% variable salary or peppercorn is also similar. On the face of it all advisers are 'employed' but in reality if they don't hunt and kill, they go very hungry.

Lots of possible scenarios, so good to get professional advice #plugplug

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