Risk and reward

I can understand why you may wish to pay staff in the way you have done, but you now have to be mindful of the Financial Services Authority's rules on Treating Customers Fairly and managing conflicts of interest.

You will have to look very carefully at the reward structure that you have in place, and consider if it could place customers at a disadvantage. For instance, we have seen cases where employees of a brokerage were not disclosing full claims or conviction histories, thus obtaining a better quotation for the client and in turn earning more bonus for themselves. It does not take a genius to work out the ramifications of such actions for the individual concerned, for the firm, and for the customer.

It is precisely to prevent this type of potential abuse that the FSA requires that firms develop their TCF policy and, in doing so, examine every area of their business to ensure that there are no breaches.

As well as incentives to staff, you must consider a number of other areas. For example, do you have certain insurers that pay you a higher rate of commission, or profit or volume overriders? Do you have any binding authority arrangements in place, where you act as agent of the insurer? Again, as well as commission levels, do you have any claims-settling or handling arrangements that could lead to customers being disadvantaged if they were used to the advantage of the firm?

You need to examine all areas of activity, including training your staff and ensuring that they understand the TCF concept. Otherwise you run the risk of not only having some disgruntled customers on your hands, but also a regulator asking you some questions about your approach to TCF. It is impossible to examine specific circumstances in a column such as this, but if you are uncertain of what you need to do, you may need to seek some professional compliance support.