ST Nov 12, 2008All of the above is good stuff. But it fails to address the essence of the problem. And the essence of the problem is the way that the sales staff (not just in DBS, but in other banks too) are rewarded and remunerated.
DBS overhauls sales tactics
Customers will be asked tough questions before investing, says chairman
By Ignatius Low
SINGAPORE'S largest bank is making big changes to the way it sells investments to customers, as it continues to battle criticism over losses suffered by those who put money into its High Notes 5 product.
DBS Bank plans to ask more detailed questions about a customer's background and how he got the money he is investing. And it will turn away those who are not suitable for a product, even if they insist on buying it.
The bank has drawn flak for arranging and selling structured products that have been rendered worthless by the collapse of American investment bank Lehman Brothers.
Some customers claim that the risks were not explained to them.
They are rewarded and remunerated for selling financial products. The more they sell, the better. And if they don't meet the sales quota, they are sacked. Simple as that.
Naturally, the salesperson focuses more on closing the sale, than on whether the product is suitable for a particular client.
It's a little like running a school. The school may have a nice-sounding mission statement which says that it aims to cultivate good character, moral values and all-round development in its students. But if the principal assesses and appraises the teachers mainly by counting the number of A1s that each teacher's students produce, then academic grades will be what the teachers focus on.
Are there any alternative methods, for rewarding the sales staff in banks? Sure. The alternatives aren't new ideas either. Many financial advisory firms use them.
For example, DBS sales staff can be rewarded based on the total amount of investments that their clients continue to maintain with DBS, through that individual salesperson, over the years. This incentivises the salesperson to build a long-term relationship with the client, instead of just trying to close a quick sale and get the commission. This also means that the salesperson will be more careful not to sell inappropriate products which have a higher chance of triggering a dispute with the client later.
Another alternative is to ensure that the percentage of commission/recognition that a salesperson gets for selling a product, does not vary from product to product, but is tied instead to the amount actually invested by the client. Since the salesperson would have no personal vested interest to sell, say, Product A over Product B, he would focus instead of recommending whichever product (A or B) he genuinely thinks is most suitable for a particular client.