Banking giant Lloyds hit with record fine for pushy sales

Lloyds Banking Group has been hit with a £28 million fine after an investigation found its sales staff were selling unsuitable products in order to hit targets.

Lloyds Banking Group has been hit with a record fine for 'retail conduct' by regulator the Financial Conduct Authority (FCA) after an investigation identified a “serious risk” that sales staff were selling unsuitable products in order to hit sales targets for incentive schemes.

The fine of just over £28 million is split between the Lloyds and Bank of Scotland brands. Lloyds will pay £16.4 million, while Bank of Scotland will hand over £11.6 million.

Sales staff were under pressure to hit targets for sales of things like investments and protection products in order to get a bonus or avoid being demoted, rather than address the requirements of the individual customers.

The FCA’s predecessor, the FSA, had repeatedly warned Lloyds about its poorly managed incentive schemes over a number of years, while the bank had previously been fined for things like unsuitable bond sales which were due, at least in part, to its sales targets.

As a result, the fine was increased by 10%. However, as Lloyds agreed to settle at an early stage it got a 20% discount; otherwise the total fine would have been more than £35 million.

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How the incentive schemes worked

The FCA identified a number of incentive schemes in force at Lloyds.

One was variable base salaries. Sales advisers could be automatically promoted or demoted, with a pay increase or decrease, based on their sales performance. For salespeople on a mid-level salary, failing to hit 90% of their target over a period of nine months, their base annual salary would collapse from £33,706 to £25,927.

The FCA highlighted one example where an adviser sold protection products to himself, his wife and a colleague in order to hit the target to avoid demotion.

Another scheme in place was a bonus threshold, where salespeople could get a large bonus if they hit a certain target. At Lloyds in particular this could be worth as much as 35% of their monthly salary.

According to the regulator’s investigation, even if the firms themselves found the sold products to be unsuitable for the customer in question, the salespeople would often still get their bonus. Indeed 229 advisers at Lloyds got a bonus even when ALL of their assessed sales were deemed unsuitable or potentially unsuitable.

Just to add to the mess, the managers who were responsible for ensuring good practice from their advisers had their own sales targets to hit, creating a conflict of interest.

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What happens next?

Both Lloyds and Bank of Scotland will now carry out a review of their sales and where unsuitable products were pushed onto customers, there will be compensation. So if you think you may be one of those affected, you don’t need to do anything – you should be contacted in due course.

Here’s what Lloyds had to say: “The Group recognises that its oversight of these particular schemes during the period in question was inadequate and apologises to its customers for the impact that they may have had.  We are determined to ensure that any customer impacts are dealt with quickly and fully.”

What were your experiences with sales advisers at Lloyds and Bank of Scotland? Are fines like this the right way to deal with inappropriate sales? Let us know your thoughts in the Comments box below.

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