Those who bought Isas and insurance from Lloyds TSB, Bank of Scotland or Halifax between 2010 and 2012 could be in line for compensation.
Thousands of customers could be in line for compensation after Lloyds Banking Group was hit with a record fine for pressuring staff to sell products that customers didn’t need or didn’t want.
The early indication is that nearly 100,000 people could receive money.
The Financial Conduct Authority said that incentive schemes created a failure in its sales process between 1 January 2010 and 31 March 2012 where staff across the group’s high street brands – Lloyds TSB, Bank of Scotland and Halifax – were put under pressure to hit targets to avoid being demoted.
It said such incentive plans “can create a culture of mis-selling”. Lloyds must now make recompense.
Which are the products?
The regulator’s investigation focused on Lloyds’ sale of protection products and investment products between January 2010 and March 2012.
Protection products included critical illness, income protection, life cover and “expenses on death” cover. Investments included personal investment plans, Individual Savings Accounts (Isas) and Open Ended Investment Companies (Oeics).
The regulator said the banks persuaded customers to take out more protection cover than they needed.
It could also be that customers were urged to invest in funds when this wasn’t suitable for them.
How were the salesmen incentivised?
During the two year period salesmen at all three firms earned an average commission of £600 for every protection policy sold and £60 in commission for regular premium investment plans sold.
One-off investments into a new unit trust, Oeic, or Isa paid £260 in commission.
The only product which earned more commission than the protection products were lump sum investment bonds which earned an average £1,300.
The FCA’s investigation documents also revealed that the salesmen were offered “champagne” or “grand in your hand” bonuses for hitting their sales targets. Advisers were given big pay rises for towing the party line by recommending the protection products. Salesmen who missed their targets were not given bonuses and were even threatened with demotion.
One “adviser” even sold protection products to himself, his wife and a colleague to prevent himself from being demoted.
In Lloyds TSB, advisers were typically paid a salary of between £18,000 and £73,000, based on six tiers. Most were paid £34,000 or £47,000 – tiers three and four. Failure to make enough sales would see them slide down the tiers.
How many people are due compensation?
It is unclear exactly how many people are in line for compensation. Lloyds will act as judge and jury by undertaking an internal review to establish who exactly should be compensated. It has said it will prioritise 11,000 cases where compensation is most likely.
That is tiny compared with the total of around 692,000 customers who bought these products over that period. Lloyds said the FCA’s investigation of a sample found compensation was due in 14pc of cases, which would equate to around 97,000 people.
The FCA said salesmen at Lloyds TSB sold over 630,000 products to over 399,000 customers over the two year period. Halifax advisers sold over 380,000 products to over 239,000 customers, while Bank of Scotland salesmen sold over 84,000 products to more than 54,000 customers.
Millions of pounds were spent on these products. At Lloyds, customers invested £1.2bn and paid £71m in protection premiums. At Halifax, around £888m was invested and paid £38m in protection premiums, while £170m was put into protection products and £9m into protection premiums.
The FCA acknowledged that rises in the stock market may mean that “customer detriment” may be low. Any compensation on the investment products may therefore be lower as a result.
Read more: http://www.telegraph.co.uk/finance/personalfinance/bank-accounts/10510649/Lloyds-and-Halifax-mis-selling-who-will-get-compensation.html