The advice sector needs Sesame to stay open and establish a successful business model, but the odds look stacked against it.
The alternative is a widening in the already yawning advice gap, just as financial advice is going to be needed more than ever, and another huge potential call on the compensation scheme, just as the bills are increasing dramatically for yet another year.
One can see why Aviva might be inflexible. The network has experienced a lot of regulatory difficulties around pension-transfer advice and the composition of its panel and associated charges under the inducement regulations.
It is shifting to a restricted offering for its appointed representatives, the better to control the advice, but this is still a transition phase. The trail sunset clause won’t be helping the revenue streams either.
Sesame has received more than a shot across the bows from Aviva; Sesame member firms may feel Aviva has already knocked out a mast.
Aviva has told analysts that “unless the directors of Sesame are able to reach a solution that does not require continued reliance on the financial support of the Friends Life group, or following completion of the proposed acquisition, the enlarged Aviva group, it is likely that the Sesame business will no longer be viable and will not be able to continue to trade”.
Of course, listed firms have often said things in their analysts’ presentations that strike a radically different tone from the message that, say, a head of intermediary sales would offer to advisers. But that usually involved a firm wanting to keep advisers on side, while talking up its direct-to-consumer plans in the market. It was an easy story for a journalist to compare and contrast.
Aviva doesn’t have any appetite for much in the way of network liabilitiesThis message is of a different order. Aviva is in a cost-reduction mood. It doesn’t have any appetite for much in the way of network liabilities or yet more ongoing transition costs.
To my mind, it is overstating the reputational risk to both Friends and certainly to Aviva. Friends sustained next to no reputational damage from the recent inducements action but pointing this out to the board may not change their minds.
It is also another huge challenge for the regulator too. Last time a network of any scale – Honister – shut up shop, the FCA simply left the members high and dry in spite of a reported offer from Tenet to extend limited regulatory protections.
This time, Sesame may be too big for anyone to make an offer. But I would argue the regulator needs to find a way to keep those advisers advising in an orderly fashion until they can find new homes, at least partly because of the big FSCS bill risk.
In addition, the retirement income freedoms will create an unprecedented demand for advice. Is the FCA really prepared to countenance a shrinking in adviser numbers at this time?
But one has to wonder what on earth the management of the network think and indeed what freedom of action they have in the circumstances.
In an earlier column, I suggested that Sesame boss John Cowan had the hardest but one of the most important jobs in retail financial services. To my mind, he is eminently qualified to do the job.
All that is still true, but frankly the job just got even harder.
John Lappin blogs about industry issues at www.themoneydebate.co.uk
