FINED FOR POOR MANAGING OF INCENTIVES
1. Management often have schemes to help boost sales such as recruiting third party as agents/advisors or providing commissions and bonus to staffs.
"The Financial Conduct Authority (FCA) has fined Lloyds TSB Bank plc and Bank of Scotland plc, both part of Lloyds Banking Group (LBG), £28,038,800 for serious failings in their controls over sales incentive schemes. The failings affected branches of Lloyds TSB, Bank of Scotland and Halifax (which is part of Bank of Scotland)."
Source: www.fac.org.uk
2. The news was announced in December 2013 and below are key points pertaining to the SOP and management of incentives and advisors.
MANAGING OF INCENTIVES
1. Staffs were under pressure to hit the target for bonuses or being reprimanded.
2. Some staffs were selling to themselves and relatives.
3.High risks policies were found in advisers' financial incentive schemes inducing staffs to earn bonuses or incentives by selling unnecessary products to customers.
4. The incentive schemes includes variable base salaries, individual and team bonuses and one-off payments and prizes.
5. Variable base salaries - Advisers could be automatically promoted and get a pay increase or be automatically demoted by levels and have a pay reduction depending on their sales performance.
6. Bonus Thresholds - large bonuses could be earned only when certain sales target be reached.
7. Product bias - Staff gained sales points for each product they sold with average protection products earning double the sales points compared to the average investment product.
INCENTIVES GAPS
1. Poor systems and controls to monitor suitability of products being sold.
2. Staffs received their incentives even after products sold were found to be unsuitable.
3. Managers who were entrusted to ensure proper control and review of products sold had their own performance measured against sales targets. (A clear conflict of interest)
FINED FOR PROVIDING POOR ADVISORY
"Robert Shaw, former director of advisory firm TailorMade Independent Ltd (TMI), has been banned from senior positions in financial services and fined £165,900 by the Financial Conduct Authority (FCA)."
Source: www.fca.org.uk
1. Robert Shaw is the is the director and shareholder of TailorMade Alternative Investments (TMAI), an unregulated introducer, which referred clients to TMI.
2. Robert benefitted from sales and the financial benefit he received creates a conflict of interest with his duty to TMI’s customers on product disclosure. Disclosure on his benefits were also not made to customers.
3. Mr Shaw's role as a director was to ensure that TMI considered the suitability of the investment products for customers which includes transferring of existing pension funds into unregulated investments such as green oil, biofuels, farmland and overseas property via Self-Invested Personal Pension (SIPP).
4. SIPP is an UK government-approved personal pension scheme, which allows individuals to make their own investment decisions from the full range of investments approved by HM Revenue and Customs (HMRC).
ADVISORY GAPS
1. Prompt Action should have been taken when Robert was holding two roles with conflict of interests (as an asset manager and an introducer).
2. TMI has also failed to considered the suitability of the investment products for customers.
