FSA chief executive Hector Sants has warned against IFA firms using performance rewards, saying they could be breaching its treating customers fairly (TCF) principle.
Speaking at the Association of Private Client Investment Managers and Stockbrokers (APCIMS) conference yesterday, Sants said the regulator has come across several cases where firms have failed to consider its clients before implementing reward schemes.
He said firms should consider how their reward culture plays its proper part in delivering fair consumer outcomes.
Although only a handful of IFAs constitute APCIMS members, the FSA says the warning extends across the advice industry.
The regulator says it considers reward schemes to include salary bonuses, commission and profit sharing.
Sants said: “We recognise the need for firms to establish targets, where appropriate, which will lead to growth in their business. Firms frequently motivate their staff to deliver this growth through rewarding performance.
"However, over the course of a number of projects we have identified that some firms fail to recognise the influence of incentive schemes on delivering unfair consumer outcomes.
“Where firms have reviewed their reward structures, they have often not put sufficient weight on quality issues and do not go far enough in rewarding good behaviour or fair consumer outcomes.
"This observation is in fact a reflection of a broader shortcoming...many firms have yet to consider how their individual performance plans can best reflect objectives around the fair treatment of customers."
He says senior management should recruit staff with appropriate values and skills while firms should train staff effectively and monitor their competence.
Sants adds firms must use their own judgement to assess the impact of TCF on their relationship and dealings with their client.
“Firms should not look to the FSA to provide detailed guidance in relation to every nuance for every possible permutation of business model that exists in the market,” he says.
He adds firms should use material published by the FSA such as case studies as guidance and not universal advice.
He also reiterates the industry should remember the Retail Distribution Review (RDR) has not reached the end of its discussion period: "It seems that firms doubt our willingness to debate an interpretation of principle or our proposals for new policy.
"Sometimes, it seems that the proposals in discussion and consultation papers are seen as concrete rules before they are even made."
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Have your say:
"From the latest comment from the FSA concerning the above do I assume that when the FSA issues bonuses and salary or increases rewards will they consider us before doing this. Treating customers fairly i.e. us."
Terry Arch works at Eastgate Financial Services.
"Your article reporting Hector Sants comments on 'IFA rewards' seems to indicate that Sants, like so many FSA people and the media, don't know the difference between an IFA and tied agents or other intermediaries.
"When will we ever have a clear distinction between the very different components of the so calleed 'advice' industry?
"Starting at the beginning, one lot represents the client and their interests. The rest represent the product providers and are there to sell their products."
Andrew Dickson is an IFA.
"I found your report on performance awards breaching TCF very interesting. My background is from mainstream banking and the contracts written since 1996 have all had performance bonuses and targets each year – indeed the next years salary was often decided by how well your sales targets had been smashed.
"Within three years of the initial soft touch targeting being introduced at Barclays we had full blown sales performance contracts with only the slightest attention paid to customer satisfaction and lending control. Basically it was if it moves sell to it, if it doesn’t move it can’t get away – sell to it!
"Does Sants believe that this still isn’t the case in a company that tries to entice me into buying from it but has taken three weeks to open an account? What planet is he on?"
John Smith works at Jonathan Blake Money Management.
"It was with my usual sense of disquiet that I read Hector Sants comments regarding performance bonuses.
Surely this is not the same Hector Sants who received nearly £100,000 performance-related bonus last year. A bonus which I and others advisers have funded.
"Kettle and pots spring to mind but then again why should I be surprised to see that the 'do as I say not as I do' attitude continues to circulate the marbled halls of Canary Wharf."
Alan Lakey is a partner at Highclere Financial Services.IFAonline
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