The Branch Manager's Referral Target
A commercial bank in Lahore has a bancassurance arrangement with an insurer. The regional manager sets each branch a target of 40 life policy referrals per month. Branch staff receive a PKR 1,500 incentive per closed policy. A 58-year-old customer, Mr. Iqbal, visits to renew a fixed deposit of PKR 3 million. The relationship officer, under pressure to hit the monthly target with three days left, presents a 20-year endowment plan as a 'deposit plus bonus' product and asks Mr. Iqbal to sign the proposal form immediately, saying the medical is a formality. Mr. Iqbal's deposit matures in two days and he needs liquidity for his son's wedding in six months. He signs. The branch has recorded 38 referrals this month.
1. Identify the suitability failures in this interaction and explain how the incentive structure contributed to them.
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Several distinct failures compound here:
- Product misrepresentation. An endowment life plan is not a deposit and has no 'bonus' in the deposit sense. Describing it as 'deposit plus bonus' is a misleading description of a long-term savings/risk product. The customer's mental model (bank deposit, capital-safe, withdrawable) is wrong.
- Liquidity mismatch. Mr. Iqbal needs funds in six months for a wedding. A 20-year endowment has heavy early-surrender penalties and may return less than premiums paid in the first years. The product is structurally unsuitable for his horizon.
- Age/underwriting shortcut. Telling a 58-year-old that 'the medical is a formality' suppresses material information. If underwriting later declines or rates up the policy, the customer has been misled about acceptance.
- Pressure selling / no cooling-off explained. Asking for immediate signature without disclosing the free-look period denies the customer a genuine decision.
Incentive contribution: The PKR 1,500 per-policy incentive plus a hard monthly referral target converts a needs-based advisory conversation into a volume game. With three days left and 38/40 referrals, the officer's personal interest aligns with closing any sale, not the right sale. Targets and incentives that reward referral counts rather than suitable outcomes are a recognised root cause of mis-selling; controls should reward quality (persistency, complaint rates, suitability sign-off), not raw volume.
2. What should the bank's compliance function require before this policy is issued, and what should happen to the sale?
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Before issuance:
- A documented needs analysis and suitability assessment signed by the customer, covering age, income, liquidity needs, investment horizon, existing cover and risk appetite. On the facts, this assessment would fail (six-month liquidity need vs 20-year lock-in).
- Product disclosure in plain language: nature of the product, that it is not a bank deposit, that it is not covered by deposit protection, surrender values and charges, and the free-look/cooling-off period.
- Verification that the customer understood the disclosure (e.g., a signed acknowledgement or recorded confirmation).
- Underwriting completed honestly; no representation that medicals are a formality.
What should happen to the sale:
- The sale should be stopped or unwound. Given the misrepresentation and clear unsuitability, compliance should treat this as a potential mis-selling incident: notify the customer, offer cancellation within the free-look period (and beyond it, on grounds of misrepresentation), and refund premiums.
- The referral should not count toward the branch target.
- A root-cause review of the target/incentive scheme should be escalated, and the officer's conduct reviewed under the bank's sales-conduct policy.
- The incident should be logged and, where required, reported through the bank's governance channels and to the insurer partner.