Since the introduction of regulatory changes a steady stream of reports have surfaced putting the network’s future into question, including news that its parent company, Friends Life, had put it up for sale, which has been denied, the sudden departure of its chief executive, George Higginson, and the firm’s controversial switch to a restricted advice model.
This flurry of unsettling news and subsequent speculation has triggered all types of debate on the group’s future and left many reiterating previous predictions that large networks would crumble once the regulatory alterations took hold.
The gloomy sentiment was once again put into focus recently when a report from Cazalet Consulting questioned the viability of networks and warned that the ban introduced on generous “marketing packages” would cripple them.
After examining the balance sheets of Intrinsic, Openwork, Positive Solutions, Sesame and Tenet, the report concluded that “their collective balance sheets looked like they had been given a good going over with an AK-47”.
But of all these major players it was Sesame that has so far been most clouded in uncertainty. Campbell Macpherson, a former human resources director of pre-merger Sesame from 2003 to 2006, agreed that Mr Cazalet's reference to the ban on marketing allowances was hurting his former employer and warned that changes must be made to turn the network back to its profit-making glory days.
Should others leave Sesame, the network may have to deal with an additional loss of revenue on top of the other regulatory costs it has enduredAccording to Mr Macpherson, Sesame’s troubles could be salvaged should it “sell off a few assets” and follow the successful example of St James’s Place, which he claimed had demonstrated that the restricted advice model was valuable. He said: “If I was in Friends Life’s position I would sell the mortgage business and build a valuable restricted model like the one SJP has built.
“Sesame just needs to sell off a few assets to get the cash to turn things around. When I was there Sesame was 100 per cent funded by providers and getting providers to fund marketing, advertising and that kind of thing. Now you need to get your value from advice.”
Mr Macpherson explained that the major difference between his former employer and SJP was that the latter also managed funds. This, he added, could prove to be the difference between success and extinction as the distribution-only model was now “massively challenging if not impossible to succeed in.”
But while some did not perceive Sesame’s switch to a restricted model as particularly damaging, others were quick to point out how big an issue it had become.
Alistair Cunningham, financial planning director at Surrey-based Wingate Financial Planning, said that after 25 years of telling consumers that independent advice was best it was natural for there to be a backlash against the concept of restricted.
The biggest victims of this, he added, were destined to be the bigger networks, who were “inevitably” the first to be forced away from the IFA tag after the RDR was implemented. Although he explained that the nature of restricted advice was far from negative, he warned that consumers would not see it that way and needed plenty of time to come to terms with its benefits.
Because of this negative stigma, which Mr Cunningham predicted could last for a considerable amount of time, the big networks were likely to lose their better advisers and foot the bill as a consequence. He said: “The big networks will lose high-quality advisers and retain the lower-quality ones.
“It only takes one weak adviser to cost you thousands of pounds in compensation which could, in the worse case scenario, cause administration or at least consolidation and serious downsizing. Networks will struggle and as the biggest, Sesame will feel the impact most.”
Since Sesame first announced plans to go down the restricted-model path in November 2013, a steady number of its disgruntled members have voiced their frustrations.
Stephanie Pickering, partner at Tyne and Wear-based Verity Wealth Management and an appointed representative of Sesame for five years, was one of those who opted to leave because of the strategic change.
Ms Pickering said she was determined to remain an IFA and frustrated by the timing of Sesame’s announcement, which meant she was liable to pay a year’s worth of unnecessary fees because she was still listed as a member at the end of last year. According to Sesame three months notice was required to leave, which left her with insufficient time to become directly authorised.
She said: “I was surprised that Sesame moved to restricted. We have been part of it for five years and it was always very supportive of the independent model. I understood why Sesame did it with all the regulatory costs, but it just no longer suited our needs.
“All the other advisers we know are independent and it is clearly important. Lately, new clients have asked me more than ever if we are independent. In the past it did not appear important but now many clients are aware and checking to see who is an independent adviser.”
Should others follow Ms Pickering's decision to leave Sesame, the network may have to deal with an additional loss of revenue on top of the other regulatory costs that it has already endured.
For Keith Richards, chief executive officer at the Personal Finance Society and former group distribution and development director at Tenet Group, that possibility represented a massive challenge to its future survival and could be worsened should the “wild speculation” continue.
Mr Richards criticised those who judged Sesame for doing its job and suggested that everything was blown out of proportion because it was the biggest name in the profession. He said: “Sesame has found it challenging and has had to make decisions that were not very popular. Sesame Bankhall Group is a strong and well-structured business, but the impact of losing advisers and potential revenue means you must reduce costs.
“The wild speculation has not helped and has caused a high level of apprehension. Everyone is affected by increasing regulatory costs, not just Sesame and the big networks, and other advisers need to be careful about throwing stones at a glasshouse. We should be more supportive given that it is part of the advice community.”
Mr Richards, who added that Sesame was “disadvantaged” by its determination to go above and beyond regulatory requirements, claimed that too much emphasis had been put on its decision to offer restricted advice and on Friends Life’s alleged move to sell the company.
According to his take on recent events, Sesame’s restricted whole-of-market model was just as good as independent advice, and Friends Life would stand by the company and get it through this rough period.
He added: “The challenge is how important labels have become from a consumer perspective. An independent adviser could recommend exactly the same products as a restricted adviser and the vast majority of Sesame’s appointed representatives will be able to continue offering the same breadth of advice.
“People forget that Sesame has the benefit of a strong parent owner that can maintain and support the group during times when others would struggle. It has been quite public that Friends Life wanted to sell the business, but I do not think that it is really ready to abandon it. It may no longer be part of its strategic vision but that does not mean it will walk away and let it flounder.”
In response to news and speculation on its future a Sesame Bankhall Group spokesperson said: “It is business as usual. As a group we want to continue serving all types of consumers through all types of advisers, whether that is mortgages, protection, pensions or investments. That is our commitment.
“This is where we benefit from the size of the group. Having both large scale network and directly authorised adviser propositions is truly powerful and unique. The fact is that we have built a diversified and integrated financial services group. Over the last few years SBG has taken the initiative and re-engineered the business for the future.”
