Investment products are big business for UK banks. Encouraging clients to place significant sums into structured investment products or funds is a winning formula for the bank’s financial liquidity. As a result, they are motivated to promote investment products as actively as possible.
Your money where their mouth is
In the UK, there is more than £24bn tied up in bank-managed investment funds alone. You might be one of thousands of people across the country who choose to place their assets into investment products, based on the advice of their bank.
For many, it can work out very well indeed: bank investments can yield excellent returns. But some people send up bitterly regretting their decision to invest when they lose a considerable amount of money in the long run.
When that happens, it’s only natural that you’ll question the motivations of the bank adviser who sold you the product. Were they pushing hard to sell you a product that was not really suitable for your needs? What sort of incentives are bank advisers given to encourage them to achieve more investment sales?
Pressure to meet targets
As with many industries, your bank is essentially sales-driven. In order to stay afloat in a competitive market, it needs to sell products, from savings accounts to mortgages, insurance and, of course, investments.
This sales-focused atmosphere creates pressure on staff. A recent review undertaken by the Financial Conduct Authority (FCA) found that poor management practices do exist in target-driven banks, which, in turn, results in pressure to sell more and more investment products.
Incentives to sell investments
It’s common practice for banks to incentivise their staff to sell investment products. In the case of one particular product linked to the stock market, bank advisers were awarded £3,500 for every £50,000 investment they secured. In another instance, a firm operated a system whereby the first 21 members of staff to sell a certain number of investment products earned a whopping bonus of £10,000.
With rewards like this on offer, it’s easy to see the pressure on staff to sell products without the proper care and attention.
Ignoring the warnings
There’s more to incentivising staff than bonuses, and some strategies are even concerning. In 2013, Lloyds Bank were fined over £28m for threatening to demote or even dismiss staff if they failed to hit sales targets.
A 2012 Financial Services Authority (FSA) investigation revealed that senior management within some banks were encouraging staff to sell premium financial products over others, regardless of whether the product was suitable for the customer. At the same time, it was a viable tactic for staff to present themselves as impartial advisers, not sales representatives.
Incentives are still practiced today, despite warnings from the FCA. In 2013, the regulator expressed concern over a bank offering 100% variable pay to their employees, based solely on commission generated from selling financial products, including investments.
Although they did not expressly ask the banks to remove incentive-based salaries, it was suggested that they should review the ways their employees were rewarded, and be prepared to investigate “recurring problems, take action and pay redress to consumers who have suffered them.”
Misguided help or deliberate mis-selling?
When it comes to establishing whether or not you were mis-sold your investment, a lot depends on how you were sold it. If your bank adviser was acting in good faith and the investment simply hasn’t performed well for you, you may not be entitled to any compensation.
However, if you believe that the bank used hard-sell tactics to make you invest, then this could be grounds for complaint. If you want to find out more about your rights when it comes to mis-sold investment, check out our guide to investment mis-selling.