FMA says incentives boost top bank sales staff earnings

The highest amount a bank salesperson received on top of their salary as a result of incentive schemes, mostly linked to sales volumes, was $279,000 in the year ended March.

The highest amount paid averaged across all nine of the banks the Financial Markets Authority has reviewed was $104,000 in addition to salary.

However, the average variable pay of salespeople across all nine banks was just $6,180 or 9 percent of total pay.

The FMA hasn’t attempted to assess how many inappropriate sales of bank products such incentives have led to or how much harm they have caused customers.

But it is encouraging all banks to remove all sales volume-linked incentives no later than the year beginning September 30, 2019.

FMA’s director of regulation, Liam Mason, admits the financial markets conduct regulator has no power to forbid the use of such incentives although he says that is the regulator’s aim.

“We see the settings in the banks as being high-risk for customers and we would like to see them change,” Mason says.

The FMA intends to ask all banks how they will meet its expectations in March.

Any bank that hasn’t committed to removing all sales-linked incentives by then “will be required to explain how they will strengthen their control systems to address the risks of poor conduct.”

It’s clear that the banks have already seen the writing on the wall as a result of Australia’s Sedgwick report, which was a year in the making, and which lifted the lid on toxic bank sales culture in April last year.

Australia’s royal commission into financial institutions has also had a major impact on this side of the Tasman.

The FMA’s review focused on incentives in place for frontline bank staff at May 21 this year. In addition to requiring information from the nine banks in the review, the regulator also spoke to 68 salespeople and 22 managers from the five largest banks by customer number. Those five banks account for 93 percent of New Zealand bank customers.

The four largest of those are owned by Australia’s four largest banks.

When New Zealand’s largest bank, ANZ, announced its annual results earlier this month, chief executive David Hisco said his bank has removed frontline retail sales incentives “so customers could be assured our staff were delivering the best products and services for their needs.”

Mason says ANZ isn’t alone and the pace of the changes has picked up through this year.

“They’re all heading in the right direction and we want them to go a bit further.”

He says the FMA’s interviews “did get examples of inappropriate sales pressure and sales that appeared to be inappropriate” and of customers with complex needs not being provided with sufficient staff time to cater for those needs.

Customers with questions about their existing products were also being given short shrift.

“There was obviously no reward to come out the other side from that,” Mason says.

The FMA also discovered that such sales incentives often led to unintended consequences such as staff hoarding referrals rather than working as a team, leading to clients’ needs not being met in a timely manner.

The FMA also makes clear that bank directors haven’t been very inquisitive about the impact on customers of sales incentives.

Its findings in that area are reminiscent of the shock Commonwealth Bank of Australia’s directors evinced earlier this year when they discovered their bank was far from as squeaky-clean as they had thought in the way it treated customers.

Mason says it’s “pretty disappointing” that the information going up through the ranks to senior management and directors hasn’t allowed them to assess the impact on customer outcomes.

“We’re not satisfied that boards are asking for or getting the information that they should to steer the bank to get better customer outcomes,” he says, promising to keep the pressure on the banks until such matters improve.

He said there is obviously a question about what removing sales incentives will do to bank profitability.

“I would be astounded if they weren’t concerned about that.”

He said the FMA is fine with banks being profitable but that shouldn’t come at the expense of outcomes for customers.

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