The Retail Banking Remuneration Review has published its report of the Independent Review of product sales commissions and product based payments in retail banking in Australia. The Review was commissioned by the Australian Bankers’ Association.
The Report’s 21 recommendations are designed to strengthen the alignment of retail bank incentives, bank practices and culture and good customer outcomes.
The principal recommendation is that incentives are no longer paid to any retail staff based directly or solely on sales performance.
The review examined the arrangements that lead to incentives, commissions and bonus payments (variable reward payments) for retail staff of banks (Tellers, Sellers and their supervisors and near managers) as well as third parties (including Brokers, Aggregators, Franchises, Introducers and Referrers).
These roles together deal with a range of products, including various deposit accounts and loans such as mortgages, and a range of insurance products, including consumer credit insurance.
Such payments are currently linked to the number or value of products sold, offered, or distributed to retail and small business customers.
The Report recommends that each bank implement these proposals as soon as systems and other processes can be amended and by no later than 2020, if a transition period is required.
Retail bank staff
The Report recommends that the following apply to all Tellers, Sellers (including Home Lenders and in-scope Financial Advisers) and Managers:
- Banks remove variable reward payments and campaign related incentives that are directly linked to sales or the achievement of sales targets (including, but not limited to cross sales, referral targets, and profit and revenue targets);
- Variable reward payments no longer include any:
• Accelerators related to financial measures;
• Accelerator-like modifiers related to financial measures;
• Other mechanisms related to financial measures that have such an accelerator-like effect on the value of variable rewards available; and
• Financial gateways, including but not limited to those that relate to the number or value of cross sells; - Eligibility to receive any variable reward payment should be based on an overall assessment against a range of factors that reflect the breadth of the responsibilities of each role.
Remuneration of third parties
The Report recommends that, in respect of remuneration of Mortgage Brokers:
- Banks cease the practice of providing volume based incentives that are additional to upfront and trail commissions;
- Banks cease non-transparent soft dollar payments in favour of more transparent methods to support training etc.; and
- Banks cease the practice of increasing the incentives payable to Brokers when engaging in sales campaigns;
- Banks adopt approaches to the remuneration of Aggregators and Mortgage Brokers that do not directly link payments to loan size and reflects a holistic approach to performance management.
In respect of Introducers and Referrers, the Report recommends that Banks examine their governance of these arrangements to ensure that existing practices are appropriate.
In respect of Franchisees, the Report recommends that Banks that provide products or services through franchisees examine their governance and, as appropriate, remuneration arrangements and seek to make changes that are consistent with the recommendations of the Review.