Sir... This product is very good for you!!!

Have been mulling over this article in the ST

July 10, 2006
Over $1m in sales but zero commission
By Lorna Tan, Finance Correspondent



ONE would have thought that achieving over $1 million in sales of financial products in just one month would mean a sizeable commission, but not for Ms Jean Lim (not her real name), a relationship manager with a local bank.

In April, Ms Lim, 23, notched up more than $1 million in sales but her commission was zero.

Her startling predicament is the result of a rigid sales commission policy imposed by her employer, in an industry where many sales staff earn large portions of their salaries from commissions.

The Straits Times has learnt that she qualifies to earn monthly commissions only if she is able to meet a minimum sales target for each of three product lines - unit trusts, structured products and insurance.

For instance, in order to earn a commission, she needs to sell $300,000 in unit trusts and the same amount for structured products each month, while the monthly target for insurance amounts to $13,000 in annualised premiums. And the overall sales generated has to total at least six to eight times her basic salary. Sales recruits start on about $2,000 a month.

To raise the commission bar even higher for employees like Ms Lim, the bank is also fond of promoting specific products as 'Product of the Month'.

Again, there is an additional sales quota for the relationship manager for these types of products which could be a unit trust, structured product or an insurance plan.

Said Ms Lim: 'It was the first time I had hit $1 million in sales and yet I received zero commission that month. I sold more than $1 million in structured products but I was unable to hit my target for insurance products.

'What can I do...force customers to buy what they don't need?' She has worked at the bank for about a year.

Banks are generally guarded when it comes to providing information on the sales quotas they impose, but a check among relationship managers showed that a multi-product target system is prevalent at several banks here.

Many banking sales staff argue that this type of compensation structure means they have little incentive to highlight warnings and disclaimers of products during the sales process - because there is high pressure to post big sales.

And this raises fresh questions about an industry push to better inform customers.

The findings of a recent mystery shopping survey conducted by the Monetary Authority of Singapore showed that out of the 100 sales representatives who were approached, only about one in 12 explained the warnings, exclusions and disclaimers of products.

Indeed, a personal financial consultant at a local bank - not the bank Ms Lim works at - said: 'If I've to follow all the guidelines, I'll be out of a job.'

Sales quotas vary from bank to bank. One foreign bank has a similar structure to that of Ms Lim's bank in that there are minimum targets to achieve for each product type, but the targets are lower, such as $150,000 for unit trusts and $5,000 for annualised premiums.

A senior executive at a bank with such multi-product target structures said the rationale was that 'every customer needs multiple products'.

Others such as Citibank and Standard Chartered Bank (Stanchart) said they do not set minimum sales targets for specific product types.

Said Stanchart's head of consumer banking, Mr Ajay Kanwal: 'We want our staff to sell what the customer needs.'

On a positive note, it appears that more banks are adopting a reward structure that is not solely based on sales targets but also includes customer service, compliance and competencies measurements.

OCBC's head of corporate communications, Ms Koh Ching Ching, said: 'At OCBC, a large bulk of the compensation for our sales staff is based on the way they service customers and not just on the volume of sales, which means their remuneration will be impacted if a customer complains or cancels his purchase.'

Hmm. Really interesting.

Let's take a look at this.

Firstly, the poor girl sold over S$1mn worth of structured deposits. Why did she not get any commissions then? Well, because she failed to achieve the minimum portfolio sales for Unit Trusts, Structured Products and Insurance. This very much reflects the way the industry has been for the past 8 - 10 years, when the banks started becoming really focused on their fee-based income.

Next, the MAS mystery shopping exercise showed that only 1 in 12 explained the warnings, exclusions and disclaimers of products. I find this result really odd... and disconcerting. With the introduction of the Financial Advisor's Act (FAA), bank sales staff have an obligation under the Act to fully disclose all the "hidden clauses", failing which there will be punishments ranging from written warnings, fines and even blacklists. What's even stranger is that precisely because of the FAA, the banks have all produced forms advising clients of the risks of these investments. These require clients' acknowledgement. Were these documents conveniently buried among the other paperwork... and snuck in? Were the remaining 11 out of 12 officially warned? Why was there no "public warning" issued by the MAS to the investing public about the results?

It's also interesting that "it appears that more banks are adopting a reward structure that is not solely based on sales targets but also includes customer service, compliance and competencies measurements". The operating word here is
solely. A few years ago, in my last incarnation as a Personal Financial Consultant, I was top in terms of customer service. So many of my clients had written in to compliment the work I was doing.... My reward? A crystal vase and some monetary incentive. What's interesting is that despite this, I was largely ignored by management for not being a "performer", having been deemed to be underperforming because I was not selling as much as the others. So, in spite of this adoption, the traditional measurement is still one's ability to garner sales!


In my opinion, I think the problem lies right smack in the compensation plan.... when you pay so much for someone to sell investment products from you... the motivation WILL NOT be in the service. Rather, it's how fast one can sell the product. Fix the compensation plan by upping the basic salary and cut the payouts on the investment products substantially, and you will wipe out a large part of the rogue behavior. The problem is that the banks are not likely to do so as this would compromise their bottomline.


The girl also says 'What can I do...force customers to buy what they don't need?'. I believe many are, if not forcing, influencing their clients to do precisely that. This is where the danger really lies; when lines between being a financial "adviser" and that of being a "salesperson" is truly and totally blurred. Many a client have bought because they trust me. In my mind, this is really dangerous which can send clients down the path of financial disaster.

To be fair though, not all the banks are like that. While I'm currently not working directly in the sales of investment and insurance products (I could not get myself to sell a product if I didn't think it was good for my clients), I know that my current employer does not push targets like others do. There are constant internal campaigns to always do what is right, to always put the clients first and to not proceed with something if it's not good for the clients.

I'm proud to be working for an organization like that. As for the others, until there is a substantial change in the compensation plans, customers will have to assume that these relationship managers would only be keen to sell their products and the term Caveat Emptor would apply.