We’ve heard a lot about the challenges facing the larger advice networks in the post-Retail Distribution Review world, but no single case appears to support this contention more than the protracted efforts by Friends Life to offload Sesame Bankhall Group.
As is well known, Resolution-owned Friends effectively put the network and support services group on the block a little more than a year ago when it engaged Barclays Capital to undertake a ‘strategic review’.
Of course Friends itself has always maintained it is keeping all options open, but everybody with even a vague knowledge of the situation knows it wants rid.
So why, one year later, has there been no movement?
We are, after all, talking about a group that proclaims itself - with very little opposition - to be “the largest distributor of financial advice in the UK”.
If the buyout announced this morning (28 February) by Old Mutual Wealth of one of Sesame’s biggest network rivals, Intrinsic, shows anything it is that distribution might is a very attractive thing. Sesame Bankhall has this is in spades.
What the network side of the business also apparently has in abundance, however, are liabilities.
Sesame - again using its own words - “is the largest and longest established adviser network in the UK”, established following the merger of a number of smaller businesses more than 20 years ago.
While this might seem at first glance a blessing, it is in fact a curse.
In an industry with no long-stop, a business like Sesame is liable for every piece of advice given by all of its past advisers in perpetuity.
And, by all accounts, it is this ongoing and growing liability that is putting off potential buyers.
For some memories are all too fresh of the £6m fine handed down by the regulator last year relating to Keydata sales dating back up to eight years.
The penalty was £2m more than its trading profit for 2012 and the main contributor to a £9.3m overall loss for the year.
There are plenty of bidders for the Bankhall adviser support business.
Perhaps most notably Standard Life-owned Threesixty Services expressed serious interest, while SimplyBiz managing director Matt Timmins claimed his firm had “the capacity to restore Bankhall to its glory years”.
Tellingly, there has been no public interest express in Sesame itself; private conversations suggest this is indicative of the appetite in the market.
The only whiff of interest was rumoured to have come from bosses of the firm itself, with a former director suggesting the departure of George Higginson and finance director Paul Hooper was presaged by a failed attempt at a management buyout.
This has led to speculation that the group could be broken up - and Sesame subsequently wound up.
Lots of articles have proclaimed to ‘understand’ this is the case, but I’d be careful about reading too much into what our sources suggest remains pure speculation.
What all of this does show, however, is the problem facing the larger networks. We hear all the time of tightening PI cover and spiralling costs: Sesame may be the first example of an abortive sale, but as stakeholders become more skittish it is unlikely to be the last.
What is the solution?
Well, Sesame itself has chosen to ditch independence to contain its risks. If in the future it can rely on more cost-effective distribution that is far less suscepticle to claims down the line, it can begin to once again tip the balance sheet back towards its revenues and away from its liabilities.
Other networks and nationals are making the same move, either overtly - eight out of 10 of the largest IFA distributors emerged restricted as soon as RDR came into force, for example - or in a more indirect fashion by shifting membership rates in such a way as to incentivise a shift from IFA to RFA.
We’ve heard a few cases of IFAs seeing membership renewal rates skyrocket at firms that claim to be staunch supporters of independence, while restricted rates are whittled down to ever more competitive levels.
If a little unseemly, this is at least understandable. While smaller firms seem broadly keen to retain IFA status and enthusiastic predictions of a major shift are consistently disappointed, the bigger firms with the furthest to fall were always likely to seek refuge in restricted.
Beyond all of this, the potentially sad case of Sesame is one that should focus minds among the powers that be to re-look at the case for a long-stop for financial services sector, in line with that afforded to professionals in other industries.
Were the speculation to prove accurate and Sesame to be shut down, close to 900 investment advisers and 1,300 mortgage and protection advisers would immediately become de-authorised. Look what happened to Honister.
The consequences for the advisers - and, more importantly, their clients in a market already plagued by a post-RDR advice gap - do not bear thinking about.
In an industry with no long-stop, a business like Sesame is liable for every piece of advice given by all of its past advisers in perpetuity.
