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Led by award-winning consumer advocate Denise Brailey, BFCSA (Inc) are a group of people who are concerned about the appalling growth of Loan Fraud around the world. BFCSA (Inc) is a not for profit organisation in the spirit of global community concern and justice.
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Australian Financial Review Apr 19 2017 5:00 AM
Banks will be forced to make wholesale changes to the way they reward staff members under a series of recommendations that look to scrap bonus payments to retail bank employees that rely on hitting sales targets.
They will also be asked to stop paying some incentives to mortgage brokers under the recommendations which seek to do away with soft dollar payments, such as travel and hospitality, and volume payments on top of upfront and trailing commissions. The recommendations will also crack down on campaign offers, where a bank ramps up bonus terms for a limited period to aggressively take market share.
The Sedgwick Retail Banking Remuneration Review, which has been conducted by former Australian Public Service Commissioner Stephen Sedgwick for the Australian Bankers Association, will be released on Wednesday and will contain 21 recommendations. The review aims to bridge the emerging trust gap between the industry and its customers by breaking the nexus between targets for selling products and incentive payments.
The centrepiece of the reforms is the scaling back of bonus schemes where hitting sales targets is the main driver of behaviour. The review will recommend that sales targets, for a range of products sold by staff including credit cards, personal loans and insurance, contribute a maximum weighting of 50 per cent in any incentive payment and must fall to 33 per cent or less by 2020.
The review recommends that any incentive or variable reward payment be constructed with a range of inputs that better reflect the responsibilities and consumer expectations flowing from the role while improving consumer outcomes.
It will also recommend that volume-based triggers such as accelerators, modifiers and gateways which see staff eligible for higher incentive rates are also dropped immediately. The devices were identified by Mr Sedgwick in his first issues paper and are effectively triggers for payment increases when targets are reached. Sedgwick has recommended they be replaced by devices that lead to better customer outcomes.
The recommendations will pose considerable cultural and procedural challenges for the banks with the reforms consigning both formal and informal sales leaderboards to the junk heap.
Performance management systems which typically rely heavily on sales metrics will also need to be restructured to include much greater emphasis on staff behaviour and customer outcomes.
While some bank employees will be largely unaffected by the changes, a large cohort of sales-oriented staff members will find the new regime challenging and are expected to drift away from the banking system entirely.
The aim of the report is to introduce reward systems that are "product neutral" and therefore reduce the chances of systems that hurt customers.
Among the products that fall under the review's umbrella are transaction accounts, term deposits, travellers cheques, travel money cards, general insurance products, consumer credit insurance, mortgages, credit cards, personal loans and small business lending.
The report contains a set of highly specific recommendations for payments to the mortgage broking industry but in what may be a surprise for the industry it stops short of recommending the same guidelines it has laid out for retail banking staff.
Mortgage brokers have grown to be an essential channel for banks with brokers now accounting for 54 per cent of all mortgage flow. Brokers are primarily rewarded on the volume of loans that they sell customers.
The review recommends that the banks work in conjunction with their commercial partners to introduce a new focus on governance that is comparable to the improvements they make to their own staff incentive programs.
It does, however, get prescriptive on some matters for mortgage brokers and recommends putting an end to soft dollar payments, cutting out the third layer of incentives such as volume-based payments which are paid in addition to upfront and trailing commissions, and finally, stopping the practice of ramping up incentives payable to brokers during campaigns.
Although the review does not find enough evidence to support an outright ban on all product-based payments in retail banking it does conclude that many of the banks' current practices carry enough risks that they must be changed.
Recommendations are expected to be implemented by the banks as soon as practically possible with any transitional arrangements to be completed by 2020.
The banks are also expected to include details of the new incentive arrangements in their annual reports to shareholders and update changes.
The big four banks are expected to support the recommendations with NAB and Commonwealth Bank pledging to implement the report's final recommendations following the release of an issues paper back in January.
The review was commissioned by the Australian Bankers Association as part of a six-point plan announced in April 2016 to address the trust gap between customers and the banks following a series of scandals in wealth management and life insurance.
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