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FCA fines Sesame £1.6m over ‘pay to play’ distribution deals

The FCA has fined Sesame £1.6m for setting up “pay to play” distribution deals. 

The regulator has found that between 1 January 2012 to 31 January 2014, Sesame told certain providers that it expected them to purchase additional services in order to secure distribution through its new restricted advice proposition.

The FCA says Sesame effectively set up a “pay to play” arrangement which undermined the ban on commission under the RDR.

During the selection process, Sesame told a number of providers that it expected them to spend an extra £250,000 a year on services to be placed on one of Sesame’s restricted advice panels.

In one case, a provider included its budget for services from Sesame, for the years 2012 to 2016, in its initial response to the tender.

Sesame reviewed the response and the firm requested that the provider increase its budget for services by £750,000 per annum for the years 2014 to 2016.

The FCA says Sesame acted in pursuit of its own commercial interests by selecting providers on the sums the Sesame group would receive  for additional services. This was not in its clients’ best interests and had the potential to distort the advice Sesame’s customers received.

FCA director of enforcement and financial crime Tracey McDermott says: “Firms must place customers at the heart of their business. Our reforms were designed to ensure advice is based on what is best for the client not the adviser.

“Firms can have had no doubt about the outcomes we were looking for here. Sesame’s approach to inducements, in the face of a clear position from the regulator, undermined the rules in order to look after its own interests.

“If we are to move on in financial services we must see firms focusing on how they achieve the best outcomes for their customers – not adopting practices that avoid our rules.”

SBG executive chairman John Cowan says: “We recognise that the arrival of the RDR introduced a step change in regulation and heralded a new relationship between product providers and distributors. As the market leader, we should have been more responsive to the wind of change blowing through our industry.

“In January 2014 the leadership was changed and the new executive team has been implementing a new and more transparent policy, as well as building a robust operation that will serve customers better in the future. This has led to significant improvements in our processes and controls, with customers’ best interests and quality outcomes placed firmly at the centre of all business decisions.”

This is the fourth time Sesame has been fined by the regulator. In June 2013, it was fined £6m by the FCA for failings relating to the suitability of investment advice.

In April 2007, the network was fined £330,000 for failures in relation to its complaints handling of Scarps, and in October 2004 it was fined £290,000 for failing to monitor an appointed representative engaged in pension unlocking.

Earlier this week, the regulator dropped its investigation into whether Partnership struck a distribution deal with an advice firm which undermined the RDR. 


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. And are they the only Network, or support company, or indeed product provider to have entered into such deals? You can bet your FCA fee for next year they are not.

    Have the providers who entered into these agreements also been fined? Surely this wasnt a one-sided agreement.

  2. @ Truthseeker.

    Quite so. These networks and support services (ex-networks) have always had these cosy deals (extra commission and under the table deals) in order to justify their existence and survive. It was hoped that the RDR would severely hobble them as they can now no longer control the cash flow as fees are de rigueur. But as ever entrepreneurs will find a way.

    I would have thought that the fine should have done away with the decimal point if it was truly going to discourage this sort of behaviour. The networks never were exemplars of best practice.

  3. I think the preverbal is about to hit the fan with a lot more of these coming out in the near/not so near future.

  4. They used a template that has been around for years and used by different networks. The providers that paid such amounts would also have been in breach of the rules.

  5. When will the FCA look at the Service Companies increasing premiums to END CUSTOMERS only to pay more Comission so called IFA’s both Chartered and Directly Authorised.

  6. We’re trying to create a world based on ‘theory’ and with those at the helm never having experience the real world.

    When I was informed of this fine the email had a sponsorship message – that’s pay to play

    If you are an independent adviser you are independent of mind. If you sit in a network meeting and you see a series of presentations I don’t see how that’s any different to seeing an email sponsorship message, an advert in the press, a meeting with the account manager ………………

    If a provider sees the spend on the ability to present/interact to/with a network as value for money then why should anyone interfere? If they get little return then don’t repeat the spend the following year.

    The issue should be focussed at the point of advice – if an adviser (I’m assuming independent here although I accept the article is about a restricted matter) says his ‘advice’ is because the person he saw presenting at his last network meeting was very nice then he’s an idiot. The advice should still be substantiated on client circumstances. I thought that was the rules.

    In fact if you think about it then we may as well ban all forms of advertising and insist advisers only make recommendations through thorough research, facts, figures, etc – what’s the point of any advert other than an attempt to sway the on-looker with a subliminal message.

    Yes I accept that there will be some RDR experts who say that technically any form of payment is commission in another form but I don’t see how a client being charged £x feels any different whether his adviser network has no provider interaction programme whatsoever or indeed does and makes a fortune from it. Same price as far as he’s concerned. Advice is either right or wrong at the point of sale based on facts/circumstances NOT when a provider was trying to interact with the adviser network

    The irony here is that the matter is about being restricted – surely the whole point of the restricted model is that there is natural commercial sway. If you find that awkward then just be independent.

  7. Contractually anon 31st October 2014 at 9:58 am

    Charging as much as you think someone will pay to go on the restricted panel, rather than assessing which providers offer useful products for your customer demographic is very different to an advert. And that’s before you get into the assessment as to whether the restricted panel contains sufficient range to meet the needs of your customer base.

  8. @ contractually anon 9.58 – It doesn’t matter how big or small the restricted panel actually is. All it means is that you provide your service on the best of what you have available. No different to the old direct sales force selling the most suitable product from within its range. It doesn’t mean it is bad advice for the end user. I am in no way saying its perfect but if it means that clients are getting reasonable products which means they are planning for their future instead of just leaving cash on deposit or under the bed then that should be seen as a positive move.
    The FCA is pathetically infatuated with trying to create theoretical utopia in a real world and that is impossible, but they keep the fines coming and in public domain so they can be seen to be “the good guys”. Unfortunately this Sesame fine is the thin end of the wedge and other Networks may well find themselves in the press over the coming months.

  9. Contractually anon 31st October 2014 at 11:23 am

    @ Marty, that’s a fair point, but what I was trying (badly) to say is that the range needs to reflect your customer base, unless you are going to narrow your customer base accordingly. You can’t advise someone to take out the best of what you have available if it’s unsuitable for them. And the driver for your range is a valid consideration when looking at how a firm treats its customers.

    Using the old direct sales force example now, the insurance firms used to sell any old rubbish, but now, they are expected to look at what the customer needs before designing the product (obviously whether they do or not is a whole debate in itself)

    I don’t think this fine is pathetic. We might be seeing the last vestiges of old style industry, but the sooner it gets fully stamped out the better. I would be interested to understand why Partnership got dropped… MM, fancy putting in a FOIA?

  10. Nothing new here, move on.

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