There has been a huge amount of press and blog comment about the decision of Sesame to relinquish its independent status in favour of a restricted model.
As is usually the case in these situations, many of the comments delivered more heat than light. I would include some fairly fanciful definitions of what the FCA regards as independent in this category.
However, can we perhaps look at this situation from another, less emotional viewpoint – what problem are the parties involved actually trying to solve here?
Sesame have historically had two operational concerns. The first is about the quantum of liabilities the firm has accumulated. The second is underlying profitability.
Seen through these angles, the move to a restricted offering makes complete sense. It allows them to manage down future liabilities by focussing new business into a narrower range of products or funds that can be ‘detoxified’, benefiting clients, advisers but especially the network.
That control alone will help support ongoing profitability, and deliver greater certainty to shareholders.
What’s not to love? Why all the angst?
Well, there is another viewpoint here. That of the advisers.
It’s worth exploring the demographic of the typical network adviser here.
In my head, this is a man in his 50s who has been in the business since Noah was a lad. He is probably a former direct salesman used to running his own show, and fiercely independent and passionate about his clients. So yes – someone just like me, in short.
They usually work in small firms, often with only two or three advisers, with a couple of support staff. They earn a decent living, but are working harder than they have for a while.
And what problem are they trying to solve? Well, it’s always the same problem. Attracting and keeping the right clients.
And there lies the rub. Since 1988, the overwhelming ‘brand’ has been the ‘independent’ brand. “I’m an IFA, Mr Client. That means I can search the whole market for you, so you don’t have to,”
That’s without looking at the complex issues around the conflicts of interests involved in accountants and solicitors referring to ‘restricted’ advisers.
So these are two different problems, and the proposed solution appears to me to possibly solve the network’s problem – liabilities – and increase by a yet unknown quantum the adviser’s problem – which is marketing and branding.
We have yet to see how this scenario will play out. I believe we will see a significant reduction in members of the network, although they may attract some advisers for whom the branding issues are not a concern. That’s just business, and there is certainly room for all in the market.
That does just leave me with one slightly bad taste in the mouth. They could have come out and said, “Hey chaps, it’s like this: We need to make more money and to reduce liabilities. This restricted gig looks good – how about we go this way?”
Instead they have chosen the age honoured “beware the monster under the bed” tactic. The message is: “Hey guys, it’s not us. We would stay independent, but the horrible FCA monster is forcing us to do this. Bad, bad FCA! But you better stay with us. If you go out on your own, the big bad FCA will eat you.”
There is no monster under the bed. For many members staying and being restricted will work. Others will be better off going direct. It will be for them to make a business case either way.
Phil Billingham is director of the Phil Billingham Partnership