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Sesame’s Higginson: £6m FCA fine shows why we had to take more control

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George Higginson

Sesame chief executive George Higginson says the network’s systems and controls and misselling failings were partly caused by advisers being allowed to create their own investment portfolios.

The Financial Conduct Authority fined Sesame £6m yesterday for failing to ensure investment advice was suitable and for failings in the systems and controls that governed the oversight of its appointed representatives.

Speaking to Money Marketing, Higginson says many of the network’s problems were caused in part by advisers being allowed to construct their own portfolios.

He says: “We cannot have advisers building their own portfolios completely of their own choosing, it is something the industry has driven and it is absolutely ridiculous. It is about time we as an industry grew up about this and put a stop to it.

“We have a centralised investment proposition because I would rather have an investment expert in charge of that than an individual adviser who thinks he is a fund manager.”

Higginson says he noticed systems and controls issues in the business as soon as he arrived in January 2011, something he claims he has spent the last two years trying to address.

He says: “I have been very clear on this since I came in that we need proper systems and controls in but you cannot change that overnight. If the FCA did not believe I was doing this it would not let me be here.

“There are some things that have been done in the past that I was not in agreement with and they will not be done on my watch.”

Since January, Sesame has applied stricter controls over investments permitted for use by appointed representative firms.

The firm now operates a three-tier list of investment solutions – an approved list which ARs are permitted to use freely, a banned list which ARs cannot use and a third list which requires individual compliance clearance on a case-by-case basis.

Around £5.8m of Sesame’s fine was related to business carried out between July 2010 and September 2012. Higginson refused to comment on whether any previous Sesame management changes came as a result of the regulatory failures.

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Comments

There are 24 comments at the moment, we would love to hear your opinion too.

  1. Finally, the cat’s out of the bag:

    “Higginson says many of the network’s problems were caused in part by advisers being allowed to construct their own portfolios”

    Actually, that’s what being an INDEPENDANT Adviser allows you to do, making your own judgement and standing by, and being accountable for, that judgement.

    Being a network member never was truly independent, regardless of the façade created by Network managements, and now that’s been well and truly discredited, the controls that Networks will have to impose will remove the opportunity for any decision making at adviser or firm level.

    The big question to my mind is – If those Advisers had not felt that they were ‘protected’ by network membership, and would have to accept full personal responsibility for their advice, would that advice have been any different?

    Independent should mean just that. The Networks are doomed – get out now while you can and go directly authorised, it’s really not difficult.

  2. It is absoluetly absurd comments like this one that has prompted us into getting our application in to become DA. They have centralised their proposition for one reason only and that is to profit from distribution. It is very clear that this network is pushing advisers down a restricted offering to reduce compliance costs and to increase profits. How dare he comment that Advisers think they are fund managers and how dare he think that we are too dumb to be able to compile a portfolio of funds with different assets, geographical splits whilst targeting top fund managers that consistently outperform and matching this precisely to clients att to risk. His generalised statement is derogatory to say the least.

  3. I’m sorry but I thought that the fine related to misadvice on Key Data products and assessment under the wrong risk category to clients who could ill afford them.

    Forgive me if I’m wrong but I don’t believe that advisers have to ‘pick funds’ to sell a Key Data product they simply had to lap up the commission generated for very little work – which generally prompted their ‘popularity’.

  4. “The fine is made up of £5.8m for systems and controls weaknesses in its investment business and £245,000 for advice in relation to Keydata products.”
    So the bulk of it not to do with Keydata

  5. At last! We have it from the horse’s mouth.

    Sesame Bankhall are trying to make sure that advisers use their own investment proposition – in which they have a vested interest.

    And next they will mandate their new software system – of which Sesame have a particularly poor record at delivering usable systems.

    Maybe after that independence will go?

  6. Will,
    the comments made by George are hardly diplomatic, but the fact of the matter is that advisers constructed portfolios that the FCA found to be unsuitable for clients. The advisers concerened were either negligent or believed their investment skills were better than they actually were. Sesame were held responsible, but the fine does seem high to me.

  7. Well said Gerry, originally Sesame was there to support IFA’s and let them get on with their job, now it is telling them what they can and cannot do.

    IFA’s are generally a pretty independent bunch (no pun intended) and Sesame is now starting to sound more like a franchise operation, watch the exit door.

    Which network is next, and how much will Friends Life need to pay someone to take Sesame off their hands.

  8. @Gerry Cooper
    I absolutely agree with you. Network members never have been and never will be truly independent. It was always a sham. Also (and I admit controversially) I have always thought that the networks fostered the lowest common denominator, although I do admit that a significant minority were and are competent and good firms.

    One of the reasons that AIFA abdicated and ditched the ‘I’ was mainly at the behest of the networks who were (and still are) the largest single contributors. I have never fully understood why perfectly competent IFAs join a network. The price they pay for the service far exceeds the costs of direct regulation, but I guess that they can hide behind the skirts if (like now) the effluent hits the ventilator.

    I do hope that the Regulator will now take a long hard look at these networks and finally declare that they are all restricted.

  9. Higginson is perfectly correct. I’ve yet to meet an IFA that has the proper skills (and backup) to be building portfolios and selecting funds. You just have to observe how Discretionary Fund Managers do their job. Thye have huge amounts of data filtered to them every day and have the knowledge required to make constant changes to clients portfolio. We are IFA’s not fund managers. Just because you have Analytics dont think you can match DFM

  10. Is it not true that the regulators are more concerned with misselling risks when there is an En Masse action i.e. a Network dictates a course of action gets it wrong and the entire membership is forced to follow. Risk is reduced when individual make individual decisions.

  11. Andy
    Your quite right the comments made by George arent diplomatic and i stand by my response above. I also agree that it is obvious that certain network advisers have compiled portfolios that dont match the needs of of clients. It is Sesames responsibility to make sure that wasnt happening, it is Sesames responsibility to ensure firms systems and controls are in place correctly and it is Sesames responsibility to make sure their own systems and controls are in place but are they taking any responsibility for their failures; – no. I suspect, just like the rest of us you dont know the full details of the reasons for the fine or what percentage of the fine was in relation to model portfolios as the statement above just says ‘in part’ so please dont try to make out that this comment is just in relation to model portfolios. His statement is aimed at all advisers (inc you) that he clearly feels are incapable of compiling a portfolio of funds for clients or did you not read ‘He says: “We cannot have advisers building their own portfolios completely of their own choosing, it is something the industry has driven and it is absolutely ridiculous. It is about time we as an industry grew up about this and put a stop to it.’

  12. Anonymous | 6 Jun 2013 10:57 am
    So if what you say is correct and i dont disagree with a lot of your comments then why is that these DFM offerings do NOT outperform??? In general performance of DFM, Multi Manager, Multi Asset risk graded funds is average at best and until they prove to me that they do outperform on a consistent basis then i will continue to compile portfolios for my clients.

  13. Man in the hat 6th June 2013 at 11:08 am

    There seems to be a big mis-understanding around what a Centralised Investment Proposition means. Having a CIP does not mean you cannot be Independent, it just means you have some actual structure to your investment process and a good level of controls to help ensure consistency. The scope of product coverage within your CIP can still be whole of market and cover all RIPs but allowing advisers some freedom in what they recommend, but within constraints of well researched panels and model portoflios for example, ‘freedom within boundaries’ as it were.

    Sesame’s fine in relation to systems and controls will be due to their lack of oversight and control of their advisers activities, with their advisers delivering massively different advice to clients across the country without the implementation of any robust processes or structure. FSA/FCA dont like this.

  14. Shame on blaming the advisers. However, advisers are not (in the main) investment experts, just like doctors are not pharmacists and pharmacists are not drug manufacturers. Each to their own specialism

  15. I retired as a IFA and network member some years ago but still have an interest in what goes on.One or two of my ex-clients have fallen into the clutches of a DA IFA who in my opinion has taken them for a ride.A retired gentleman who had well diversified investments of apprx £500K has had the lot moved to a single fund management company at a fee of 2%(£10000 in your back pocket-a good days work).He did not realise it was all being moved!!
    A widow of 79 years of age had £80K moved to the same fund managers–yes you guessed it 2% again.Neither of these people are financially astute and I suggest that they have been taken advantage of. If I had wished to do this as a member of my network it would not have been allowed.Not all DA IFAs are pillars of honesty. You may say I am no longer authorised but I can still see right from wrong.

  16. We can all offer stories of IFAs being rapacious and costing clients large sums of money-the truth is these IFAs constitute a tiny minority. The overwhelming majority of IFAs seek only to offer funds or a portfolio of investments that will benefit the client and the overwhelming majority of IFAs are successful in this simple endeavour.

    What I find stunningly arrogant from Mr Higginson is the suggestion that “we cannot have IFAs building their own portfolios” and that such an activity is “ridiculous”. The suggestion by a Chief Executive of a network that we must all use DFMs-some of which have less than impressive records–is complete nonsense and should be disregarded by any IFA who takes being independent seriously.

  17. Well said Blair i could not agree with you more

  18. Whilst it is a sweeping statement that has been made.. In my opinion portfolio construction shouldn’t be a priority for an adviser.

    There are plenty of ways that a robust model portfolio can be sourced, this used in conjunction to satellite investments for specific planning reasons will invariably give a better solution and save an adviser time.

    I see advice and planning as my role.. portfolio construction and fund blending… definitely can be done better by third parties.

    The plan and how to get there is more my thing!

  19. John Bloomfield 6th June 2013 at 5:03 pm

    @Blair

    Higginson is not saying advisers have to use a DFM

    He is pointing out that the new Sesame regime want advisers to select from a range of funds that are prevetted and approved and match the clients risk profile and asset allocation in various criteria. Any adviser wanting to deviate from the (quite extensive) pre-approved list has to go to the research bods and make a case before doing so and it permission can be refused.

    Previously there was a list of pre-vetted ‘recommended funds’ but if an adviser wanted to do so they could without talking to anyone about why and just had to make a file note to support their decision after the business was done.

    Sesame are just trying to exert a some more control to ensure that advisers are really thinking about why they are straying from the list and that Sesame know when it is happening.

  20. I am presuming that most comments are from people that did not read the final notice. Give it a go… it is very enlightening.

    Or you could refuse to let facts get in the way of a good story.

  21. 1) Sorry to be personal, but I suggest that he arranges a new press photo, as that one is quite frankly a little odd!

    2) Is he suggesting that Sesame’s membership is not competent in terms of its investment advice? If so, expect a considerable drop off rate in membership; right or wrong, you keep comments like that private between you and your membership! Bad call!!

  22. A “Gerald Ratner” moment if ever I saw one.

  23. KeyData was on Sesame RPL!!!!!!!

  24. Will | 6 Jun 2013 11:03 am – you are completely missing the point about portfolio building. It has NOTHING to do with outperformance or underperformance. It is to do with managing the RISK. Over time, the performance will sort itself out; however, it is imperative that there is a complete understanding of all the component parts in a portfolio. That is where an adviser falls down as he/she simply won’t know all the investment details.

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