Monday, July 10, 2006

Over $1m in Sales But Zero Commission

There had been many people whom had feedback via various channels that the financial consultants in the banks do not really provide good and relevant financial advice. Today's report in The Straits Times highlighting the plight of a relationship manager who received zero commission for over $1 million in sale will definitely start bringing the practices of banks under the microscope.

I have constantly advocated not buying financial products from banks as I had found the ability of their financial consultants to be far from adequate. Sitting through sessions with the banks' consultants, there is usually poor understanding of my needs and considerations and their knowledge of financial planning is sometimes even poorer than me, a non-financial practitioner. Furthermore, it is always the "hot" products that are being pushed out... When certain market segments have shown good returns for a while, corresponding products are pushed out but the easy money had already been made and more often than not, buyers of these "hot" products are buying in at the peak only to see poor or even negative returns.

For unit trusts, banks levy sales charges that are usually much higher than that of online distributors such as Fundsupermart, Dollardex or even finatiQ. For products such as structured deposits, the clients take on the investment risks for the bank, bearing losses if any and gaining less than if they invest the amount instead themselves.

Banks should focus on what they do best, deposits and loans for the average man. The average person on the street will definitely appreciate an immediate better interest rate (currently less than 0.5% p.a.) on their savings than banks trying to get them better returns via investments and subsequently losing their hard earned funds.

July 10, 2006
Over $1m in sales but zero commission

By Finance Correspondent, Lorna Tan

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.

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