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Sesame: We’re still using ‘pay to play’ providers

Sesame is still using providers which were selected as part of “pay to play” distribution deals on its panel, executive chairman John Cowan has admitted.

Earlier today, Sesame was fined £1.6m by the FCA for setting up distribution deals which required providers to purchase additional services to secure a place on its restricted panel.

It signed long-term deals of five years or more and told providers it expected them to spend an extra £250,000 a year on services to be placed on its panel.

Speaking to Money Marketing, Cowan says: “Providers involved in the deals are still on our ‘restricted focus’ panel. That is currently being reviewed.

“There are commercial sensitivities around that and there are legal contracts involved, but nevertheless we are going to get to a different place to where we are today.

“[Whether or not to break the contracts] is a commercial decision we would have to make and perhaps suffer penalties for it. We are looking to do the right thing and suffer the pain for it.”

Cowan declined to say how many of the providers are still on the panel.

When asked to defend the network’s regulatory breaches, Cowan suggested there was a general lack of understanding in the market around the RDR rules.

He says: “There was some confusion in the market about what activities could and could not be done. The rules only firmed up in September 2013 when guidance on inducements was published.

“I am not in the business of defending issues of the past because I was brought in in January to run the business on a different model.

“I have been in financial services all my career, and to varying degrees business practices went on, whether it was sponsoring sport or inviting people to events. Everybody in the industry was aware of the business relationships between providers and distributors. I would ask, ’is Sesame the only company that has operated in some sort of different way to the rest of the marketplace?’”

However, the FCA says in its final notice that it made it clear to firms that upfront payments as a pre-condition for appointment to a panel was inconsistent with its standards of conduct, from June 2004 onwards.

Cowan denied that members may have been misled into giving advice that was not in the best interests of clients.

He says: “The selection of providers on the panel allows advisers to do a good job. If you reassembled the panel [stripping out the deals], I would suggest it would look very similar.”

Cowan says Sesame no longer offers any services to providers which generate a profit for the network.

He says: “The RDR has driven the industry to a better place, and maybe some firms have been slow and some have been quicker, and my great regret is we didn’t get there quicker. If we are guilty we are guilty of not reading the signs.

“I certainly believe the business has learned from its mistakes – this regulatory action relates to the past and the current management team is completely different to what it was at the time.”

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Comments

There are 11 comments at the moment, we would love to hear your opinion too.

  1. Can we also have an assurance from the FCA that no one working for the FCA will be accepting any hospitality or inducements from banks, Insurers, product providers or any other body which could benefit from a stance taken by the FCA?
    This of course would include any government member or body as the FCA maintains it’s independence from the government.

  2. 1) “It’s not me gov, it was the last lot” – analagous to House of Commons political blame dodging. No wonder “financial advice” brand stinks in minds of media, regulators, MPs and most important of all, the mass public.

    2) Absolutely no apology or even faux apology from Mr Cowan. Just excuses. Breaks first principle, indeed rule, of how to handle cockups and/or legally questionable behaviour.

    3) Probably worst example of corporate non-mea culpa I’ve read in more than half a century. Expect it will be used in teaching future business leaders how NOT to respond when caught out by a regulator, the police, a whistleblower or undercover media exposé.

  3. the elephant in the room 30th October 2014 at 4:39 pm

    Hang on a minute? Haven’t the FCA just dropped the case against Partnership for their £15M inducement to Openwork, yet here they are fining Sesame £1.6M because apparently they are not allowed to do such things!

    So FCA people – can we have some consistency please? Either hang them ALL or give them all a pardon – just make up your mind please so it makes sense to us all.

    Oh and by the way, while you’re at it take a look into SJP’s set up – you might be very surprised that a business model like theirs still exists in this post RDR world!

  4. the elephant in the room 30th October 2014 at 4:44 pm

    Hang on a minute? The FCA have just dropped the case against Partnership for their £15M inducement to Openwork, yet here they are fining Sesame £1.6M because apparently they are not allowed to do such things!

    So FCA people, can we have some consistency please? Either hang them ALL or give them all a pardon, just make up your mind please so it makes sense to us all.

    Oh and by the way, while you’re at it take a look into SJP’s set up. You might be very surprised that a business model like theirs still exists in this post RDR world!

  5. Bruce have to agree with every word you said The only one how will suffer are the members of Sesame They are the ones who will foot the bill for the mess
    The network model is a relic of the eighties .In which the advisers hard work and effort rewards a few. at the top

  6. In the good old days it was arm twisting. More commission? More training? A nice contribution to the cost of our conference? Clearly, the advent of the restricted regime raised the stakes, which ought to have been predicted.

    But will the regulator go after the companies that coughed up the loot? Surely they too have broken the rules. If Sesame breaks the contracts and changes the panel, what will the providers do? Can’t see them suing somehow. If Sesame makes no changes to the panel, but stops taking the loot, will the members or the clients or both have to make up the difference?

    What all this reveals is that, unless the Sesame deals are unique, which seems unlikely, providers are still finding ways to buy distribution. So has the regulator managed to ring about an improvement? High levels of indemnity commission financed the original networks, but at least if the business went off the books a bit sharpish some of that commission was recoverable. The big players did not encourage their members to churn, and the panels were more or less whole of market.

    Not perfect, but is it really all that much better now?

  7. It may well be within the FCA’s powers to declare these contracts null and void, on the grounds that they constitute a fundamental breach of certain aspects of its RDR. If so, it’s hard to imagine any sort of legal fight-back.

    When all else is said and done, one of Sesame’s primary criteria for allowing providers onto its panel appears to have been whether or not they’d be prepared to commit at least £250,000 a year to training and other unspecified “services”. Trying to defend such a policy on the grounds that other are probably doing the same really doesn’t wash.

  8. the elephant in the room 31st October 2014 at 9:58 am

    Hang on a minute? Haven’t the FCA just dropped the case against Partnership for their £15M inducement to Openwork, yet here they are fining Sesame £1.6M because apparently they are not allowed to do such things!

    So FCA people, can we have some consistency please? Either hang them ALL or give them all a pardon, just make up your mind please so it makes sense to us all.

  9. It wasn’t rocket science working out what Sesame were doing with it’s restricted panel imposition. All you had to do was talk to people at firms such as Just Retirement who at the time were probably the best enhanced annuity provider out there for their annuity rates, but weren’t on the panel.
    The people left behind at Sesame are in for a torrid time resulting from the serious mismanagement gong back years. I’m even reading posts on forums where sole traders have had 127 cases checked in 12 weeks. Talk about overkill and closing the door after the horse has bolted.

  10. It has always been pay to play at networks, it used to be overrides and bungs.

    And networks made a “profit” on reselling their own PI insurance to their ARs, the regulators haven’t looked ta that little wheeze.

  11. In the good old days it was arm twisting. More commission? More training? A nice contribution to the cost of our conference? Clearly, the advent of the restricted regime raised the stakes, which ought to have been predicted.

    But will the regulator go after the companies that coughed up the loot? Surely they too have broken the rules. If Sesame breaks the contracts and changes the panel, what will the providers do? Can’t see them suing somehow. If Sesame makes no changes to the panel, but stops taking the loot, will the members or the clients or both have to make up the difference?

    What all this reveals is that, unless the Sesame deals are unique, which seems unlikely, providers are still finding ways to buy distribution. So has the regulator managed to ring about an improvement? High levels of indemnity commission financed the original networks, but at least if the business went off the books a bit sharpish some of that commission was recoverable. The big players did not encourage their members to churn, and the panels were more or less whole of market.

    Not perfect, but is it really all that much better now?

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