This hasn’t garnered a great deal of publicity lately, but there’s one particular piece of thematic review work that the FCA has said it will carry on during the 2014/15 year.
It’s to do with how well firms manage the performance of their sales staff, and in particular, whether the methods used to do this contribute to the risk of mis-selling and poor customer outcomes.
If you want to find out where this is mentioned, firstly, you can go to Annex 1 to the FCA’s 2014/15 Business Plan, where this piece of thematic work is highlighted for completion by the end of Q1 2015.
You’ll also find mention of it in the FCA’s update on its work assessing the risks to customers from financial incentives (TR14/4). This was published in March this year, and the forthcoming piece around performance management is mentioned in the overview.
There’s a clear distinction
The FCA has made it clear that the ways in which sales staff are managed bring a separate set of risks to those associated with financial incentives. Incentives are all about the extent to which the prospect of additional remuneration linked to sales, drives the wrong behaviours from sales staff, resulting in inappropriate sales and poor outcomes.
The management of performance is something different. This is looking at whether sales staff behaviours are driven by the ways in which they’re managed. This can be, for example, by the way that sales targets are set, or other particular requirements that need to be met for staff to be successful in their jobs.
And, as a result, whether these non-financial pressures can also contribute to mis-sales.
The FCA has made it clear that whilst linked to the work on incentives, this review is effectively a separate piece of work.
One which, it could be argued, has more severe potential implications for firms.
Not as easy to fix
Theoretically, if a bonus structure is discovered to be driving the wrong behaviours, then it can be changed to one that doesn’t. Firms in many cases structure the payment of bonuses on a discretionary basis, so to adjust them doesn’t require changes to employment contracts.
And you could argue that it’s the same with performance management.
If sales staff are being put under too much pressure because of demanding targets, then just change the targets.
Likewise, if staff are not being given long enough to prove themselves before a firm decides whether to retain them or not, then change the policy to give them more time.
It all sounds very simple. But performance management structures don’t just touch on the hard metrics. There are a number of “softer” aspects as well, where firms could be subject to investigation.
One line of questioning firms will undoubtedly get from the FCA is to what extent training and competence (T&C) programmes are set up to deliver the right outcomes from sales staff, and also, how effectively they’re managed.
This gets to the heart of a key issue – how well are sales staff, and their management, trained to do their jobs, both initially, and on an ongoing basis?
Firms will undoubtedly have a T&C programme in place for sales staff and their supervisors – regulation says they have to. Its effectiveness, though, is an area that’s ripe for scrutiny.
Here are some of the possible areas that the FCA could ask firms to provide evidence about:
- Onboarding – How comprehensive is the initial training for new advisers? How does the firm make sure the adviser obtains the necessary qualification, if they don’t already have it?
- Initial Supervision – How close is the supervision of new advisers in the early stages of their job? What procedures are in place to monitor their early sales, and put right any instances of unsuitable advice?
- Ongoing Supervision – To what extent do sales managers oversee the activity of experienced advisers? Is this proportionate to the risks inherent in the sales processes (e.g. customer profiles, types of proposition)?
- Risk identification – How adept is the firm at spotting trends in advice provided to customers, through its MI? How is this reviewed by sales management?
- Staff turnover – How well are resignations and dismissals monitored by management? Can they spot upward trends? Do these act as a trigger to look into performance management to find any root causes?
- Ongoing training – How do advisers maintain CPD requirements? How is this managed and what remedial steps are taken when staff fall short of their requirements?
The answers provided to these questions actually point to the strength of the culture within a firm as well as the targets it sets for its staff. And a key component of culture is how well staff are trained.
The fact that this review is forthcoming is therefore a good reason for firms to take a good look at their performance management structures. In particular, whether the support given to staff in terms of making sure they obtain and maintain competency, is adequate.
Because suitability of sales can be driven, not just by the pressure of targets, but by how confident staff feel about doing their jobs, because of the training and development they’ve received.
And if firms can get this right, they’ll increase their chances of justifying to the FCA that their performance management structures are set up to drive the right behaviours and customer outcomes.
Luckily, for management, there’s plenty of support available from external training providers, both in terms of generic and specific regulatory training. Industry Events Online is the obvious choice as a first port of call.
By Martyn Oughton a Professional Member of the International Compliance Association (ICA). Martyn now writes a regular blog for Industry Events Online focusing on the importance of training in all aspects of compliance. Read Martyn's other publications at Martyn's Writers' Residence website.
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