There is no adequate evidence of substantial systemic risks of poor outcomes for customers to support an outright ban on all product-based payments in retail banking but current practices need to be changed to promote customer interest, according to a review.
Stephen Sedgwick’s final independent review into retail banking remuneration listed 21 recommendations for the banking industry to implement, stating that if implemented in the spirit intended, it would complement initiatives by the Australian Bankers’ Association and tackled the “trust deficit” in the banking sector.
Among other recommendations, the review said incentives should no longer be paid to any in-scope retail staff based “directly or solely” on sales performance. Rather, staff would receive rewards based on various measures, of which sales, if included at all, would not be a dominant feature.
The review said sellers such as in-scope financial advisers and home lenders, tellers and managers should not receive variable reward payments and campaign related incentives that were directly linked with hitting sales targets (including but not limited to cross sales, referral targets, and profit and revenue targets).
The maximum payment would also be reduced substantially for some roles, the report said.
The review also called for substantial investment into ensuring performance aligns with a retail bank culture that was “demonstrably and ethically and customer oriented”.
This should be supported by a proactive approach to developing leadership and management skills at all levels to ensure management practices aligned with a culture that was customer oriented.
The review said banks should implement the recommendations in the report as quickly as possible but if transitional arrangements were necessary, banks should implement all recommendations by 2020.