IN SEPTEMBER 2012, the City watchdog revealed that a probe into bank sales incentives had uncovered “serious failings”, warning that some firms were in very hot water indeed.
It was no great secret which banks the regulator was referring to. It just so happens that the boss of Lloyds Banking Group chose the same week to admit that banks had focused excessively on sales targets and needed to change if they were to restore trust.
In a masterclass in stating the bleedin’ obvious, Antonio Horta Osorio said banks had become “complacent, non-customer-focused and inefficient”. That week, conveniently and by remarkable coincidence, Lloyds revealed it would be launching a new scheme that removed the link between incentives and sales targets.
Coming just weeks after some of its executives claimed there was no need to reform its sales-based incentives schemes, there was more than a whiff of suspicion about it. An overwhelming stench would be more accurate.
Drawing a link between the results of the regulator’s investigation and the bank’s apparent about-face wasn’t difficult. For those who made the connection, the record £28 million fine slapped on Lloyds last week for mis-selling was a surprise only because it took so long.
In announcing the £28 million penalty, the Financial Conduct Authority revealed that up to 700,000 people who bought investment or protection products from the banks between 1 January, 2010, and 31 March, 2012, could have been mis-sold (the bank must now work out which customers are due redress).
Remarkably, albeit unsurprisingly, advisers received bonuses on sales even where they were found to be either unsuitable or potentially unsuitable. So the banks knew from their own reviews that customers were being mis-sold and continued not just to turn a blind eye, but to encourage it.
Branch-based investment mis-selling is less likely to happen now, if only because most high street banks have closed their investment advice services to all but their most affluent customers. Most did so last year, in anticipation of a ban on commission-based investment sales that took effect as part of the retail distribution review on Hogmanay.
Can you guess when Lloyds Banking Group announced it was scrapping its mass-market investment advice service? Yes, it was indeed September 2012. Must have been something in the water at Lloyds that month…