Lloyds fined £28m for ‘sell or be demoted’ incentive plan
Lloyds Banking Group has been fined a record £28m by the Financial Conduct Authority for putting staff under so much pressure to sell some even bought the products to save themselves from the axe.
The FCA said that incentive schemes created a “culture of mis-selling” between 2010 and 2012 where sales staff across Lloyds, Bank of Scotland and Halifax were put under pressure to hit targets to avoid being demoted, rather than focus on what consumers may need or want.
Taxpayer-backed Lloyds has already set aside more that £8bn to compensate victims of PPI – Payment Protection Insurance mis-selling – by far the largest provision made by any British bank. The regulator’s investigation focused on Lloyds’ sale of investment products, such as share ISAs and income protection products between January 1, 2010 and March 31, 2012. Sales were offered “champagne” or “grand in your hand” bonuses for hitting targets. The FCA said the worst case it had seen was “evidence that one Lloyds staff member sold protection products to himself, his wife and a colleague to prevent himself from being demoted”.
The regulator said competency standards were “seriously flawed” and advisers still received a monthly bonus even though a high proportion of sales was found by Lloyds to be unsuitable or potentially unsuitable.
For a Lloyds TSB adviser on a mid-level salary, not hitting 90pc of their target over a period of nine months could see their base annual salary drop from £33,706 to £25,927; and if they were demoted by two levels their base pay would drop to £18,189 – almost a 50pc salary cut, the FCA said.
It’s the ninth biggest fine ever issued by the City regulator and the largest ever for a breach of retail regulations.
Tracey McDermott, FCA enforcement director, said: “The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the consumer at heart.
“The review of incentive scheme that we published last year makes it quite clear that this is something to which we expect all firms to adhere.”
“Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite.”
The FCA said that Lloyds was handed its biggest ever retail fine because former regulator, the Financial Services Authority, had warned about the use of poorly managed incentive schemes for a number of years.
Lloyds TSB had also been handed a fine for the unsuitable sale of bonds in 2003 caused in part by the general pressure to meet sales targets.
The FCA said during the period of 1 January 2010 and 31 March 2012 Lloyds TSB advisers sold more than 630,000 products to over 399,000 customers, who invested about £1.2bn and paid £71m in protection premiums. In comparison, Halifax sold over just under half 380,000 products to more than 239,000 customers, who invested around £888m and paid £38m in protection premiums.
While Bank of Scotland advisers sold 84,000 products to over 54,000 customers, who invested around £170m and paid £9m in protection premiums.
Lloyds settled with the regulator at an early stage and therefore qualified for a 20pc discount. Without the discount the total fine would have been £35m, the FCA said.
Lloyds today “apologised” for any inconvenience it may have caused. There was no comment from Antonio Horta Osorio, the chief executive, who picked up a £2.3m bonus for 2012 last month.
Today’s fine follows media campaigns last year which revealed the pressure sales staff at Lloyds were under. One Halifax manager picked up £39,000 for three months’ sales over the first three months of 2013. The windfall – which almost equalled his entire salary – was so big it had to be signed off by Halifax chief David Nicholson.
In September last year Lloyds head of retail Alison Brittain insisted she would “bash the bonus bullies” and change the sales culture. But this Spring staff claimed nothing had changed and pressure was intense as ever.
One told The Sun: “Sales are now called ‘needs met’. It’s compulsory to ‘mid-brief’ every customer – to leave the interview and get a manager to check we have ‘maxed out sales’. It is also now compulsory to cold call a minimum of 25 customers every week. If we don’t, we are threatened with a ‘Performance Plan’.”
The FCA refused to say whether it was carrying out any separate investigations into Lloyds today. The bank withdrew packaged accounts at the start of this year saying it had to “harmonise” the sales process. They have not come back on sale since.
Richard Lloyd, executive director of Which? today said: “It’s right that in this case the Financial Conduct Authority is taking strong action by imposing their largest fine.
“This should send a clear message to the banking industry that mis-selling won’t be tolerated and that customers, not sales, must come first.
“We now need to see the new professional banking standards body deliver a big change in banking culture right across the industry, so that front line staff and their managers are not incentivised to sell products that customers don’t want or need.”
Read More: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10510228/Lloyds-fined-28m-for-sell-or-be-demoted-incentive-plan.html