11 for use in oral briefing only sales culture and systems and controls in retail division grr...

11For use in oral briefing only

Sales Culture and Systems and Controlsin Retail Division

GRR Review commissioned by the Board

Aide memoire for early discussion with Andy Hornby

11th June


Contents

Important preliminary remarks

Our terms of reference

The work we have done to date and the work we still have to do

Key preliminary findings

Some important observations made during our review

Next steps


Important preliminary remarks

The review is still underway and we have not yet undertaken the process of assessing and concluding on

the significant amounts of information and evidence that we have obtained. The comments made in this

document are preliminary findings only. However, we are confident of them even at this early stage

It is very clear from the discussions we have had with the senior management team that everyone is

taking the matter of risk and systems and controls very seriously and making progress.

Lets not forget, it has been an enormous business achievement to change the culture in Retail to focus

on marketing and sales. Some of our findings are just part and parcel of the next steps in the natural

evolution and growth of the organisation. We must not “kill the goose that laid the golden egg”

But there are important lessons to be learnt from the review which apply to both Retail and the

Group Oversight functions …..but the whole organisation has some accountability.

The way in which the findings of the work are communicated and agreed will be very important, and

their communication to the FSA vital. The focus should be on the future and what is being done, rather

than dwelling on the past forcing a detailed expose of substantive evidential material to justify each

conclusion that has been drawn. This could kill the goose that laid the golden egg.

There are great benefits to be had by executing the change well – and vice versa.

We genuinely understand that the review may have added to tensions and relationship challenges

between GRR and Retail. We see the way in which the findings of the review are communicated to

Retail, together with the way in which we work with Retail in addressing any actions arising as being key

to developing this relationship.


Our terms of reference

To remind ourselves, the fundamental objective of the review was to

enable the team to provide a formal assessment of:-

“…whether the risks to customers and the wider prudential and regulatory

risk associated with the marketing and distribution of financial products by

HBOS’s Retail Division are being managed in a control / governance

framework and cultural environment which will ensure that the key risks are

identified, assessed and mitigated in manner which will meet the key FSA

and HBOS’s requirements and policies.”


The work we have done and have to do

We have carried out the following work:-

Thirty or more management interviews

23 Branch visits – 2 cancellations

7 Focus Groups

We have seen 125 customer facing colleagues

Approx 1.5m of paperwork!!

Two contact centres

2 Bosis Branch visits

Work still to do:-

3 Bosis

A few interviews or follow ups

Evidence marshalling and analysis

Report writing


Preliminary findings

Everyone appears to agree that the focus on sales culture has led to an imbalance with the

control environment. The evidence from our review strongly supports this view.

This does not mean that there is actual clear evidence of customer detriment, but, there are 1

or 2 areas that we may need to investigate in more detail. But being out of balance is, in itself

as we already know, an issue of considerable importance to the FSA and must be rectified.

In our opinion it’s the balance of emphasis and focus (rather than experience as proposed by

the FSA) amongst senior management that has led to a culture which is overly sales and

marketing focused and has given inadequate voice / priority to risk and control issues. The

quality of the individuals themselves we found to be exceptional and we have no evidence yet

that suggests that intentions have not been correct at all times.

The risk and compliance environment within Retail has undergone incremental change but has

not kept pace, in certain parts of the division, with business developments. At the same time,

regulatory requirements have significantly increased and, given Retail’s market position, it is

inevitable that the regulator will expect HBOS to demonstrate a risk management framework

appropriate to the nature and scale of the business.

There is a distinction between the Network and regulated sales area. We found that the

systems and controls within the network, were significantly less effective than within

Regulated Sales.


In our view the balance within the Network needs to be redressed as a matter of priority,

particularly having regard to the upcoming mortgage and GI regulation. However, we do

recognise the importance and challenge of maintaining a committed and successful sales and

marketing culture.

The culture created by such a strong focus and drive on marketing and sales has also created

a tension in the environment and it appears that people have not always felt able to say what

they wanted to say. This has resulted in people “down-loading” pent-up frustration. One

opinion holds no weight but two or more corroborate each other. A lot of people said the

same. You need to see some of this and we need to decide what it means and how we should

fulfil our AP responsibilities. There is some evidence which might suggest inappropriate

behaviour which will have to be investigated further.

We acknowledge the importance of balance in the assessment and conclusions we have

drawn from some of these discussions, however, they were not isolated, and it appears to

provide strong evidence which if misinterpreted could be used to build more serious

allegations.

There is some evidence which suggests that customer interest has not always been fully

served by the environment created. We suggest that further work is done in certain areas to

examine this further.


Important observations / remarks

Oral update


Preliminary Detailed Findings…..examples

Category Finding/Observation Implication (examples)

Targeting –

Sales (inc

Bonus)

Significant driver of behaviour

Instances of inappropriateness (current market share,

skills within branch, coverage (eg, new PFAs covering

same area) and local initiatives (“TMPP Monday”, “Give me

five” (where the target is to sell a customer 5 products in

an interview and enters a prize draw), “Saturday Slayer”

(where prizes are awarded for accounts opened on a

Saturday), “Power hour” (where they focus on one product

and staff are award with time off for sales))

No or little ability to challenge/influence targets

Cherry picking customers based on potential to cross sell

Product bias and product push exists

Evidence of dysfunctional behaviour relating to targets

(eg, trading sales with other branches, directing deposits

to savings accounts – New Money, TMPP, loan/card

protection)

Potential to sell to the needs of the organisation not

the customer’s – TCF implications

Potential to mislead customers (eg, Bank accounts

with mandatory credit cards, provide a quote for

insurance and then tell the customer to cancel it if

they don’t need it)

Branches do not book appointments for customers

who they see has having low sales potential

May overlook affordability and responsible lending

requirements. Mitigant proposed is repayment

cover

Focus is often on the products with achievable

targets and is also driven by bonus related bias

(credit cards but only with repayment cover, regular

premiums)

Sales approach

consistency

No formal sales process in Network

Lack of suitability guidance in Network

Heavily scripted in RCCs but discretion over sales

approach to prompts

Highly controlled in Regulated Sales

Inconsistency of Network sale given identical

customer profile and needs. This can be location or

timing based

Inconsistency of sale between contact centres and

branches


Preliminary Detailed Findings….. examples


HR High staff turnover in key Network positions (BM,

ASM) and RCC sales positions (MA)

Skewed BM recruitment policy and standards

Shortage of suitable candidates for key positions

(eg, BM and ASM) and cases of rapid promotion

Inconsistent and inappropriate Management

approaches

Increasing levels of staff turnover

Disillusionment regarding next role/progression

HBOS loses a considerable amount of experience that

needs to be replaced

Increased costs incurred relating to recruitment, induction

and on-going training

Lack of continuity of management in Network can be

unsettling for colleagues having to adapt to different

management styles and priorities

Rapid progression of staff who may lack all necessary

skills. Potential that mangers are not competent to

supervise adequately

Training and

Development

Network Sales Academy is very sales focused.

Certain elements (including Risk) are optional

Lack of ongoing support and development in

Network

Supervisors are not always competent to be

observers

Observations classed as ‘unsuccessful’ does not

always lead to advisers being removed from the line

Training is not sufficient (e.g, Level 2 PFA training

does not prepare advisers for full advice role)

Risk and compliance not introduced as priorities from

outset

Value and importance of observations is decreased

Risk and compliance standards not enforced or seen as

mandatory

Colleagues in Network, RCCs and PFAs (eg, level 1s) may

concentrate on selling only those products that they feel

confident with and possibly ignoring more pressing client

needs


Preliminary Detailed Findings….. examples


Relationship

between

Network, RCCs

and CSCs

Tension exists between all three channels

Seamless service is not offered to customers resulting

in complaints

The customer experience is determined by the

channel they choose

Increased level of customer complaints

Forthcoming

regulation

Currently a disconnect between central view on

status/preparation and that of MA’s/AMM’s

Experienced MA’s are leaving the organisation

High staff turnover (evidence gathered from Sheffield

RCC where, in one team, MA turnover stands at over

80%)

Experience staff leaving will have to be replaced by

similarly skilled (CEMAP qualified) MA’s which could

involve cost and time in recruiting and inducting

against already challenging timescales

Communication Complaints about the poor levels of internal

communication on product changes (features), rate

changes, operational requirements (eg, need to reverify

existing customers), programme status, and targets

Migrated customers were told that they didn’t need to

do anything. As a result of migration, many customers

were charged £30 fee for going overdrawn due to a

system change of calculating balances. Only those that

complained have had this charge refunded.

Concern that visits (eg, by RMAT) result in direct

feedback and have been contradictory (eg, told that

RMS scores are fine but there are areas of concern

relating to risk)

Customers have received different information (and

quotes) regarding products and offers

Reputational risk as colleagues are unaware of product

features

Dissatisfied customers due to mis-communication

regarding overdraft fees

Channels see little/no value in being assessed


Next steps

???

Joint project to re-engineer the environment whilst maintaining Retail’s

unique strategy and proposition.

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