Aviva has thrown doubt on the future of Sesame Bankhall Group, making no promises in terms of funding the subsidiary of Friends Life should its acquisition of the latter complete and revealing the distribution business is only viable thanks to currently “open-ended” financial support.
The group also revealed the ongoing strategic review of the adviser network and support services group, launched by Friends Life in early 2013, involved discussions with the Financial Conduct Authority and that some “solutions” for the business would need regulatory support to succeed.
Sesame, the UK’s largest and oldest advisory network, made losses of approximately £19m for the 2013 financial year. Aviva states in its merger prospectus that it understands in its current form it is expected to “continue to make losses in the future”.
It also noted that Sesame has potential liabilities which cannot currently be quantified arising from claims against advice or services provided to customers by appointed representatives.
Friends Life began a strategic review of SBG in early 2013 in order to address the financial uncertainty of the businesses and to “examine whether there are steps that can be taken to address the structural issues so as to reduce or remove the need for financial support”.
So far the review has resulted in the Sesame business moving to a wholly restricted advice model, operating through two strands including a panel-based service. Deals with providers as part of this were responsible for the latest regulatory penalty of £1.6m handed down last year.
Aviva stated that following completion of the proposed acquisition, the enlarged Aviva group’s financial condition and brand reputation could be adversely affected and it refused to pledge ongoing “open-ended” support in the future.
“If the outcome of the review is decided prior to completion of the proposed acquisition, it is possible that the conclusions reached by Sesame, SBG or the Friends Life Group... may not be consistent with those that would have been reached by the Aviva Group.
“... [This] would be the case if these conclusions would require the enlarged Aviva Group to continue to provide financial support to Sesame on an open-ended basis.”
The document added that if the enlarged group were to withdraw financial support, unless the directors of Sesame are able to reach a solution that is independently sustainable “it is likely that the Sesame business will no longer be viable and will not be able to continue to trade.”
Statements also noted that as part of the acquisition, there may be about 1,500 job losses across the enlarged group, as Aviva looked to deliver about £225m of annual savings by the end of 2017.