New remuneration rules threaten pay of London sales staff
If you work in sales in an investment bank, you'll know all about sales credits. Sales credits are what determine your bonus. As Chris Fleming, the former head of global markets EMEA sales at Nomura, wrote here earlier in the week, credits can be a kind of obsession - to the detriment of cooperation between teams. MiFID II may be about to do something about that.
The MiFID II rules come into effect on January 3rd 2018. Alongside their other many provisions, regulatory consulting firm Laven Partners cautions that the rules contain remuneration guidelines which could impact sales staff in investment banks.
Contained in MiFID II 24(10) and MiFIR (article 27), the new rules prohibit salespeople from being remunerated in a way that conflicts with clients' best interests. "Firms which are providing investment services to clients are effectively banned from paying remuneration directly linked to sales," says Laven Partners, adding that benefits and career progression need to be disconnected from sales targets too. In future, says Laven, sales bonuses will need to be assessed on the basis of "qualitative criteria" like customer satisfaction instead of simply hard numbers.
In other words, bye bye sales credits, or at least - bye bye simplistic sales credits based on easily quantifiable targets set by the bank.
The FCA is in the process of incorporating the new guidelines into its handbook. They come at an already challenging time for banks' salespeople who have seen the old order disrupted by the division of teams into high and low touch segments covering more and less lucrative clients with varying degrees of intensity. The skills required of sales staff are changing too. In January, Dixit Joshi, the former head of Deutsche Bank's sales-focused Institutional Clients Group, wrote that salespeople increasingly need to be data-savvy and able to use data to generate trade ideas. Joshi has since moved into a treasury role at Deutsche, but there's evidence of the rise of data-led sales staff elsewhere with the promotion Antonin Jullier at Citi, for example.
While the new guidelines threaten further changes to the way sales teams function, not everyone agrees they'll be dramatic. Harry Eddis, a financial regulation partner at Linklaters in London, says they're merely a continuation of the existing direction of travel: "I’m not sure it will change much. It’s effectively saying that individuals shouldn’t be remunerated in such a way that they’re incentivized to sell the most remunerative financial products to clients. This is in line with the FCA’s attempts to ensure remuneration is fair and that sales staff aren’t being incentivized to do anything they shouldn’t.”
Either way, Goldman Sachs appears to be ahead of the curve. The firm has been effecting a global "culture shift" in its fixed income sales team since last year. The emphasis at Goldman is no longer on maximizing sales during each call, but on fostering long term relationships. This seems to be what MiFID II has in mind, although it will be interesting to see how it combines with the push to increase cross-selling at the likes of Deutsche Bank and Credit Suisse.