The wrong kind of advice is bad, but no advice is worse
Imagine being so desperate to keep your job that you will sell yourself, your wife or husband and a colleague an insurance policy or investment just so you can hit your monthly sales target.
It sounds like an over-imaginative plot twist in a novel, or perhaps the rock-bottom point in a career in door-to-door sales. In fact, it is just one very human example of the widespread incentivised selling that took place at the part-publicly owned Lloyds Banking Group – a practice that has led to the Financial Conduct Authority (FCA) imposing a penalty of £28m.
This is the largest-ever fine imposed on a UK bank for failings in its incentives structure for sales people, but it is not the first and almost certainly won't be the last.
The FCA investigation looked at sales at the bank between the start of 2010 and March 2012, during a time of major transition in how financial products were sold. This was the last hurrah of the commission sales culture; at the end of 2012 commission earned on financial products was banned – at long, long last.
In response, a lot of banks have been letting their advisers go, while between one in 10 and one in six independent financial advisers (IFAs) have left the industry. Good riddance, you may say, but in truth the banning of commission, although welcome, has been replaced by what I have called the advice wasteland. In short, IFAs are charging small fortunes to give advice and in the process shutting out most of the population. One in three IFAs, for instance, say they won't touch someone who has less than £75,000 to invest.
Meanwhile, it's no wonder that the banks are skedaddling out of advice as they have the regulator breathing down their neck and most don't understand the long-term sell that is needed with proper, ongoing advice, rather than just quick hits, as was seen at Lloyds. And get this: the changes to commission would not have an impact on the sort of abuses seen at Lloyds because internal incentive schemes are still allowed. So the very worst of the worst, such as Lloyds' 'Grand in the hand' incentives, could conceivably be going on elsewhere right now.
As for Lloyds itself, it is ironic that it was seen as one of the better banks in terms of how it treated customers before HBOS was thrust upon it.
So now all that most in the UK have in the way of financial guidance is a diminishing number of bank advisers – who are incentivised who knows how? – and the independent Money Advice Service which is failing to attract sufficient numbers of users and for me looks like an institution and a marketing concept from the end of the last century. It is so top down and paternal in its outlook – financial advice by committee.
All in all, advice in this country is in a complete mess. The current danger is not so much mis-selling but absolutely no selling whatsoever.