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Which? welcomes FSA crackdown on incentives

Financial regulator to probe product mis-selling

FSA logo

The Financial Services Authority (FSA) wants to clamp down on firms using pressurised incentive schemes to sell financial products in a bid to provide greater protection to consumers. 

Speaking at the British Bankers’ Association (BBA) annual conference yesterday (July 13), Lord Adair Turner, chairman of the FSA, said that ‘too many banks had been focused on sales not solvency.’ Turner stated that over the past 20 years there have been ‘waves of consumer detriment’ resulting in over £15bn worth of compensation having to be paid out to consumers. 

Consumer protection agency

The Liberal-Conservative coalition government has already announced that the FSA will be split in 2012 to create a Consumer Protection and Markets Authority, and a focus on the sales techniques of banks will be a primary goal. 

‘We are examining firms’ business models – following the money – to understand the drivers of profitability and the implications of firms’ strategies,’ said Turner.

‘Where we find incentives, structures or products that are likely to lead to poor customer outcomes, we will take tough action, including using our enforcement powers, to ensure that customers are protected.’

Which? investigates poor practice

One major issue that Lord Turner identified in his speech was the complexity of some products and ‘the ease with which potentially simple products can be made opaque to make producers money.’ 

In April 2010, Which? published an undercover investigation into the kind of investment advice that was being given by banks and the what products were being sold to consumers. 

Between November and December 2009, our researchers visited 37 advisers at banks to get guidance on investment – 21 tried to offer some form of guaranteed or structured product, in many cases when it was not appropriate for the age or attitude to risk of the customer.

Highly incentivised sales

Further investigation of these kinds of products highlights just how much financial reward is on offer to banks. Nationwide, for example, can receive up to 7% in commission every time it sells the Legal & General Stock-Market Linked Savings Bond, which is sold as its Protected Equity Bond.

Meanwhile, Credit Suisse, which has its structured product distributed through a number of building societies, pays between 3% and 4% in commission on each product sold. 

Which? says

James Daly, editor of Which? Money, said: ‘Banks have been getting away with providing poor quality advice to consumers for far too long. We want to see the FSA ban all sales incentives and commissions for frontline staff which encourage misselling.

‘Bank staff need to be trained to a higher standard, and their pay should be linked to levels of customer satisfaction.

‘It’s encouraging to see Lord Turner publicly acknowledging the problem. His words now need to be converted into swift and decisive action, to prevent any further misselling on the high street.’

For more details of the bank reforms consumers and campaigners want to see introduced, read the Future of Banking Commission report.

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