How a few poorly chosen words by a salesperson could cost Senior Managers their freedom under the Senior Managers Regime.

Whilst at Heathrow yesterday I went to a foreign exchange counter to buy £150 of Kroner for a short trip to Sweden. The cashier told me that there would be a £3 commission charge, however if I buy £200 it will be commission free. – Thus I decided to buy the full £200. However as he counted the money, he mentioned the total amount less commission. – Whoa, ‘what about the free commission’ I asked?  He said no it was £3 for up to £200, 1.5% for £200 and above, and £300 and above free. –  I must have had ‘Mug’ written large across my forehead. - I said ‘that is not what you told me, you gave me the impression I was getting a better deal buying £200 worth’. He then changed his tune and backtracked. I won’t continue with describing our conversation further, I am sure you can see where it was heading.  

‘Old habits die hard’

Now, the actual money was not relevant here, but what was occurring clearly was, and it is something which should scare every senior manager in financial markets firms, because ‘old habits die hard’. The cashier/salesperson was misrepresenting the commission structure to get their daily sales figure up. Either that or I was mistaken, but being an ex-FX trader, who now helps banks with conduct risk issues, and also lectures in behavioural finance, I am particularly in tune to these matters and how sales are framed by salespeople.  

Now, the matter may be relatively minor, however if this is a repetitive and consistent behaviour for this individual, and among the firm’s people more broadly, then there is a real danger that this firm’s senior managers could face serious consequences. Under the recently brought in Senior Managers Regime, they could find themselves facing personal fines, or even criminal prosecution. And leaving the business would not free them of this risk; liability under the Senior Managers Regime continues for a further 6-years after they leave the firm.  

Going back to this incident: In the common parlance of selling, this individual at the foreign exchange counter was upselling: A few extra pound’s volume or commission on every sale, inflates his performance figures. I am sure a placement at this firm’s currency exchange desk at Heathrow’s busiest terminal is a prized spot given to only the best salespeople. The problem for the company is that this type of misselling and misrepresentation are exactly what the Senior Manager’s Regime is meant to stamp out, no matter how small or large.

In this case, the misrepresentation was prevalent in two ways. The salesperson framed the question in such a way as to mislead me. Secondly, they are aware that most people in airports are in a hurry and have limited choices. It is worth pointing out that the individual in front of me was exchanging Canadian Dollars for Euros. The cashier/salesperson charged him two ‘wide’ spreads for this,  CADGBP and GBPEUR, rather than a tighter CADEUR spread. To me this was almost criminal, more worrying however, two incidents in two transactions. - I really hope that this firms Senior Managers have a good law firm at their disposal.  

Why should this incident worry Senior Managers at other financial market firms?

Given the amount of publicity within the industry and the scale of fines dished out, it is highly likely that the cashier would have received extensive training around the new regulations. So how come he, and the firm, were still breaching ‘Conduct rules’?

Note to all those who believe they can change their people’s behaviours with a few ‘awareness building and training sessions’. People are limited in their ability think and behave rationally. - Most financial firms have put significant energy and effort into training programmes ahead of the new ‘Conduct Risk’ rules. However, as in this case, as well as in other examples not highlight here, I fear that they may only have a limited impact. Changing deeply ingrained behaviours and attitudes, acquired and habitualised over many years, requires a huge effort. - Recall the myriad of drink/drive and smoking campaigns. These campaigns only had relatively little success, and it was often changes in laws and tougher enforcement which had the biggest effect on these issues.   

We are not Spock.

The rational argument for behavioural change amongst employees follows a certain line and logic: Provide awareness of the new regulations, run internal campaigns, make it clear of how important it is to the company and their senior managers, ingrain it in ‘Codes of Conduct’, make it clear that failures will affect people’s career and future employability. Back this up with seminars and training days. Hey presto, all should be good in a perfect world! – But the world is not perfect , and nor are we. - The human mind does not work the way we think it does. It does not recall all relevant information and weigh up all facts every time it makes a decision. Instead our minds are heavily influenced by natural biases, emotional urges, and deeply ingrained habitual frames of reference. Our perspectives are warped and do not always see things as they truly are (think of any optimal illusions). We are not ‘Mr Spock’. – At a one-day presentation skills course I attended I was told that within a few days I will have forgotten most of what I had learned that day. Within a few weeks I will have forgotten almost 99% of what I had learned. It would take constant reviewing, repetition, practice, and reminders to embed what I learn.

Serious wealth warning: 'Senior Managers Beware'.

‘Senior Managers’ in banks and finance companies should be worried. – Efforts to change people’s behaviours will need to be far deeper, far stronger and will have to take account of human behaviour. Unless that happens, then the possibility or facing future personal liability claims under the Senior Managers Regime, is a very real possibility.
Steven Goldstein is a leading risk performance consultant and executive coach with over 30 years’ experience working in and around financial market FICC businesses. For 23 years Steve worked as a senior trader in rates and FX at leading investment banks, including Credit Suisse, Commerzbank and Standard Chartered. Since 2009 Steven has worked with banks, hedge funds and energy trading firms, helping risk takers, teams and managers transform their performance and behaviours. He has achieved considerable success in his work has led to significant performance improvements and behavioural enhancements. Steven draws on his own experiences, high powered coaching and consulting techniques, and tenets of behavioural finance in his work.