ASIC cites planners in critique of sales culture

The Australian Securities and Investments Commission (ASIC) has drawn parallels between the impact of a sales culture in the financial advice industry and that applying to small business lending, suggesting revenue-based incentives are inappropriate in both cases.

In a submission responding to issues raised during the most recent hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, the regulator said it believed business bankers should be discouraged from focusing primarily on financial incentives in their key performance indicators.

Drawing parallels between the inappropriateness of revenue-based incentives for financial advisers, ASIC said the same applied with respect to the business banking arena.

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“Whilst small business banking is a different arena, with duties towards a client or prospective client very different to those arising in the provision of financial advice, inappropriately weighted incentives that are directly related to the generation of revenue or the number of new lending clients have the potential to distort small business lending decision-making or encourage failure to follow proper processes,” the regulator’s submission said.

Elsewhere in its submission, ASIC reinforced its view that “misaligned incentives can bring about poor consumer outcomes and drive unsatisfactory conduct, in the context of both mortgage brokers and the provision of financial advice”.

As ASIC has stated in the context of mortgage broking, upfront and trailing commissions can create conflicts of interest. In an overall banking context, if commissions or incentives are paid corresponding to the size or volume of loans a like risk of conflict emerges, it said.

“A person could recommend a loan that is larger than what is needed or can be afforded, to maximise a commission payment or other incentive. This may also extend to recommending a particular product or strategy to maximise the amount that the consumer or small business can borrow. Alternatively, a person may be incentivised to recommend a loan or options in connection with that loan in order to obtain a commission, even though that loan or those options may not be suited to the consumer or small business.”

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