Wealth Manager - the site for professional investment managers

Register for full access to Citywire’s Fund Manager database, news and analysis. Registration is free and only takes a minute.

FCA fines Lloyds £28m over sales incentive failings

1 comment
FCA fines Lloyds £28m over sales incentive failings

The Financial Conduct Authority (FCA) has fined Lloyds Banking Group £28 million for ‘serious failings' in the way it incentivised investment and protection advisers.

It is the largest ever fine imposed by the FCA, or its predecessor the Financial Services Authority (FSA), for retail conduct failings.

The regulator said the bank's incentive schemes led to a serious risk that sales staff were put under pressure to hit targets to get a bonus or avoid being demoted, rather than focus on what consumers may need or want.

In one instance an adviser sold protection products to himself, his wife and a colleague to prevent himself from being demoted, it said.

The FCA found that:

  • Lloyds advisers could have their base pay cut if they failed to hit sales targets;
  • Lloyds TSB offered what was called 'a champagne bonus' where advisers received 35% of their salary as a bonus if they hit their sales targets early;
  • Halifax and Bank of Scotland advisers received a 'grand in the hand' for hitting a particular target;
  • There was a points system which caused product bias by incentivising advisers to sell protection over investment products

The fine is split between Lloyds TSB Bank (£16.4 million) and Bank of Scotland (£11.6 million) after the regulator found that both firms had higher risk features in their advisers’ financial incentive schemes which were not properly controlled. The FCA’s investigation focused on advised sales of investment products, such as share ISAs, and protection products, such as critical illness or income protection, between 1 January 2010 and 31 March 2012.

During this period:

  • Lloyds TSB advisers sold more than 630,000 products to over 399,000 customers, who invested around £1.2 billion and paid £71 million in protection premiums.
  • Halifax advisers sold over 380,000 products to more than 239,000 customers, who invested around £888 million and paid £38 million in protection premiums.
  • Bank of Scotland advisers sold over 84,000 products to over 54,000 customers, who invested aaround £170 million and paid £9 million in protection premiums.

Both firms have agreed to carry out a review of higher risk advisers’ sales and pay redress where unsuitable sales took place.

The FCA said it was not yet possible to say how much redress will be paid until the firms have identified how many customers are affected.

In September 2012 the FSA published a review into sales incentives, highlighting the poor practices used by firms across the market. One institution was referred to enforcement. The regulator has now confirmed this was Lloyds.

Tracey McDermott, the FCA’s director of enforcement and financial crime, said: ‘The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere.’

A spokesman for Lloyds said: ‘The group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had. We are determined to ensure that any customer impacts are dealt with quickly and fully.’

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Investment Pulse: the highs and lows of 2014

Investment Pulse: the highs and lows of 2014

This week's Investment Pulse looks back at some of the biggest stories of the year as well as looking forward to 2015.

Play Inside ETFs: Why the US bull-run still has legs

Inside ETFs: Why the US bull-run still has legs

Global equities suffered a sharp sell-off in the third quarter but exchange traded fund investors are continuing to back the US to outperform in 2015

Play Paul Niven: I won't rip up the Foreign & Colonial Trust history book

Paul Niven: I won't rip up the Foreign & Colonial Trust history book

The newly appointed manager of the Foreign & Colonial trust talks about his plans for UK's oldest investment company.

Your Business: Cover Star Club

Manchester wealth firm hires Coutts director for London launch

Manchester wealth firm hires Coutts director for London launch

Former Coutts director Tony Robinson has joined Chartered Wealth Management to head the company’s newly opened London office.

Wealth Manager on Twitter