AMI warns to check against sales incentives

Sarah Davidson

September 19, 2012

Robert Sinclair, chief executive of AMI, said it was vital brokers didn’t get dragged into the mire of mis-selling linked to high commissions and sales bonuses.

His comments come after The Independent published reports that the Financial Services Authority was considering widening the clampdown on commissions to cover all financial products not just investments.

But Sinclair said it was unlikely the FSA would ban mortgage procuration fees and commissions on protection products.

He said: “We are not aware of any intention to remove commission from the mortgage and insurance markets but firms should review their existing structures to make sure that they do not have trigger points or minimum standards which encourage advisers to make sales when it might not be appropriate to do so.”

The Independent published comments made recently by FSA managing director Martin Wheatley at a Thomson Reuters Newsmaker event where he said: “I expect those running firms to start looking at what their [incentive] schemes are set up to do. The dictionary tells us incentives are something that incites an action, so firms need to ask what type of action it is they incite. Is it to get the best deal for the customer, or is it to get the best deal for the person or firm selling it?”

And he added: “Today marks the start of a programme of work to reduce these risks, which the FCA will take forward. This will involve further supervisory work, a wider review of incentive schemes, enforcement proceedings, and a possible strengthening of our rules.”

Ray Boulger, senior technical director at John Charcol, said he believed the FSA has recognised that the Retail Distribution Review, which bans some investment related commissions, is not appropriate for mortgages.

And he added: “If you are investing money you have some cash to play with, you can pay a fee from the cash you are intending to invest.

“The exact opposite applies to a mortgage. Mortgage customers would have to save up for even longer to pay for those costs or increase the amount they have to borrow, and I am sure the FSA do not want to force customers to increase their borrowing.”

However Sinclair said Wheatley’s comments made clear that all firms must ensure that any incentive schemes they have for their staff do not encourage bad behaviour.

Sue Anderson, spokeswoman for the Council of Mortgage Lenders, said lenders were already ahead of the game on this issue.

She said: “This chimes true with a speech given by our chairman, Martijn Van der Heijden, in June when he said we need to make a true cultural shift from a sales culture, to a service culture.”

Van der Heijden, also head of retail products at HSBC, said at the time: “Somehow, after deregulation but before the credit crunch, mortgage lending sleepwalked into becoming a commoditised sales business rather than a true customer relationship business.”

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