Find out how financial incentives for staff could potentially have a negative effect on customers.
On this page 
Our work on the risks to customers from financial incentives has looked at firms with staff or representatives dealing directly with retail customers, such as:
- staff selling products or providing a service
- advisers and those in discretionary and non-discretionary investment management roles
- intermediary firms and firms with appointed representatives
- smaller firms, where sales staff or advisers are employed or self-employed.
This includes firms where people receive all of their remuneration from a proportion of fees, income or commission paid to the firm. This is referred to as ‘100% variable pay’.
What do firms need to do?
We expect all firms to consider our latest publication on this, Risks to customers from financial incentives (TR14/4), as well as our guidance where necessary, and review their financial incentive arrangements to ensure they are appropriately managing the risks from mis-selling.
Some of the key issues that firms should focus on when managing their incentive arrangements include:
- Checking for incentive features that are high risk because they strongly promote aggressive sales behaviour, and ensuring they are appropriately controlled.
- Using management information to check for spikes and trends in the sales patterns of individuals to identify areas of increased risk.
- Doing more to identify inappropriate staff behaviour in face-to-face sales conversations.
- Managing the risk in discretionary schemes and balanced scorecards.
- Monitoring non-advised sales to ensure staff are not giving advice.
- Improving oversight of incentives used by appointed representatives.
- Recognising that remuneration that is effectively 100% variable pay based on sales increases the risk of mis-selling, and managing this risk.
Questions for firms to consider
These will be particularly helpful for smaller firms, and should be considered alongside a normal range of compliance monitoring activity (e.g. file reviews):
- Do we consider how the way our people are remunerated might cause them to act in a way that benefits them but is bad for clients? How would we spot such activity, for example an increase in business in the run-up to a deadline that could impact on an adviser's earnings?
- Do we need to review the key performance indicators we currently use, to ensure they provide this information?
- Do we undertake extra monitoring for potentially suspicious or unusual activity, or extra monitoring for our people who achieve increased levels of business (and hence increased levels of remuneration)?
- Do we proactively look to identify where customers could be misinformed or wrongly advised in a face-to-face conversation, in a way that might not show up in a file review? For example, do we call a sample of customers to independently verify their understanding of the products or service they have taken up, why it was suitable for them and the risks/costs/charges?
Also:
- How do we satisfy ourselves that anyone speaking to clients is not putting their own interests before those of the client?
- Can we demonstrate effective controls in these incentive-related areas?