Conflict of interest between bank and customer

Mr. Tan

I started my career as an investment consultant which requires formulating advice from client's interest point of view. I had done some work with banks on asset allocation models and fund selection (thinking from customers' interests point of view).

Two and a half year ago, I decided to join a bank to carry on this work.

It is an uphill task to convince people within the bank to embrace the investment approach of diversifying investment risks for the interests of customers. This directly clashes with corporate interest of meeting sales target and paying high bonuses, via selling high margin high risk products.

To be more specific, areas of conflicts include:

1. Most products are high risks in nature. Recommending broadly diversified products will lead to cannibalising the business of those narrowly focused products (including structured products). Killing these high risk products mean threatening the jobs of those people making profits out of these.

2. People are generally excited by new products and not old products. So, there is an IPO mentality - new products are better than old. As broadly diversified products are considered old products, it is obvious that no bank will run a promotion on the newly launched global stock funds or global bond funds because they aren't any. As the room for innovating structured products is unlimited, excitement and hype can be easily created around these products to boost profits.

3. The compensation structure of people selling investment products is commission based, and it is difficult to drive sales on products with lower commission. Unfortunately, products that work for customers (e.g. Term Policy, ETFs, global diversified funds) are usually low in commissions.

I also sympathise with the sales people, who are not talented enough to be promoted out of their hot seats of having to sell highly risky products to vulnerable customers just to meet the forever increasing sales target. I suspect some of the sales people succumb to the lifestyle of closing deals that are not in the best interests of customers and enjoying high bonuses, while others with conscience are trying their very best to get promoted to become product managers or some other roles in the bank, or even consider moving out of the job of selling investment products to selling other safer thing like house, car etc.

I believe no sales person is happy with the consequences of causing losses on monies of customers with no intention to take any investment risks. I am sure sales people are also suffering significant degree of guilt.

The conflict of interests between banks and customers remain unresolved until today.

Unless this conflict is resolved totally, I remain uncomfortable working for a bank. And I believe most people who have worked in a bank will agree with me, while others who do not, may have numbed their conscience due to helplessness.

May be the banks now seriously need regulators to set specific governance framework, to help them counter the unsurmountable vested interests that are in direct conflict with customers.

(name deleted)