5 things you should be doing to put customer needs first
The Financial Conduct Authority (FCA) has criticised Lloyds Bank Group and issued a £28m fine after hearing evidence about its incentive scheme, which saw staff being rewarded for selling thousands of products to customers regardless of whether or not those products were in their best interest.
Staff members were threatened with demotion and were under so much pressure to hit targets that some even bought products themselves or sold them to family members.
MiFID II prohibits firms from remunerating or assessing your performance in ways that conflict with clients' best interests or incentivise you to sell certain products or services.
Tips to prevent conflicts of interest and put customer needs first ahead of MiFID II:
- Provide information and training - take every opportunity to remind product distributors (advisers) of your Code of Conduct rules and help them understand why they are important. Proper training and knowledge of your products, services and financial instruments can prevent mis-selling.
- Make appropriate disclosures upfront - be sure to give customers clear, fair and not misleading information in a durable format about your connections and relationships with issuers and providers, about commission and charges, etc in line with your firms' policies. Disclosures are vital and ultimately help customers decide whether something is right for them.
- Have specially appointed customer champions - whose priority is to speak up for customers, champion their needs, and look at the impact of products, changes, and developments on clients? Who can vouch for them and ensure their views are always taken into account, at every stage and every process.
- Carefully check all our remuneration, performance targets, benefits and incentive schemes - to ensure there are no incentives, performance targets or other conflicts that may cause you to recommend certain products when others are more suitable, or encourage you to act in ways that are not in the customers' best interests. Remember, even minor incentives (such as a free bottle of Champagne) may be enough to give a perception that profits and sales are more important than client needs. Where possible, always use non-material incentives to reward performance. Look for other ways of shifting the focus to customer care - eg a monthly TCF Champion - for those delivering exceptional service or commitment to customers.
- Change the culture - you can do this by making it more acceptable for staff NOT to sell in certain circumstances (if no products or services are suitable, if no information on suitability exists, etc) despite the obvious temptation. Reassure them that they won't face disciplinary action as a result, and remember to get senior managers to endorse this too.
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