Sales incentives
Call handlers in both customer services and Standard Life Direct were offered financial incentives to sell SLA annuities through normal sales bonuses and annuity-specific sales initiatives.
Sales bonuses included the monthly production bonus and ‘Mad March’, which offered higher bonuses for business transacted at specific times of the year, which formed a very significant part of staff remuneration.
During 2008-14, the average monthly production bonus was estimated to provide 85 per cent of the basic salary of a call handler, with 58 per cent being specific to annuities.
Remarkably, concerns regarding these practices were raised with senior management in 2011 and 2012, demonstrating that they were aware of possible consumer detriment.
However, no significant changes were made. Rewarding sales performance is legitimate, however the FCA requires that steps must be taken to ensure that customers are protected from any unsuitable outcomes that might result from a conflict of interest between the needs of the customer and those of the business.
Enhanced annuities
The FCA has long considered enhanced annuities to be an area of concern within annuity sales, and as such it was always likely to be under strict scrutiny.
SLA did provide written information to customers about the availability of enhanced annuities, however, it was judged that high-level call guidance and training for call handlers was insufficient, resulting in a clear risk that customers would not be clearly informed of their potential eligibility or the advantages of an enhanced annuity.
Key points
- SLA was fined £30m by the FCA last month
- The FCA has taken several actions
- Call handlers were offered financial incentives to sell SLA annuities
Unfortunately for SLA, the financial consequences of this particular failure does not stop with the current sanction and they are currently carrying out a voluntary review of around 81,000 past cases where the customer may have been eligible for an enhanced rate but did not buy one.
Where it is identified that the customer would have been better off with an alternative product, SLA is expected to pay redress that will put them in the position they would have been if had they bought the alternative product now and for the remainder of their life.
This process has already resulted in redress of approximately £25.3m to 15,302 customers, with the final bill estimated to be around £61.2m.
Had SLA not carried out the voluntary review, their fine would have been much higher.
Learning points
Keep up-to-date with relevant thematic reviews – these provide information on the standards against which your business will be measured.
Be mindful of the recent emphasis on data gathering and make sure your management information is sufficient to evidence the effectiveness of your business and advice processes.
Always cooperate fully with any regulator requests – timely responses will be in your favour and could result in lower penalties.
Fiona Tait is technical director of Intelligent Pensions
