Friends Life injected £20m of new share capital into Sesame Bankhall Group to cover potential liabilities, just before the network announced it was to close its investment advice arm.
Forms filed at Companies House show three separate transactions in December, February and March, of £10.3m, £6m and £3.7m respectively.
Friends Life said in its annual report in March that, “due to potential liabilities from advice-related claims, Sesame is reliant on the continued financial support of the group to be able to continue to trade.”
The parent group, which is currently undergoing a takeover by Aviva, has also been funding a strategic review of the advice network. A spokesperson confirmed, “The increase in capital covers the strategic review as well as liabilities.”
On 31 March Sesame announced it would be shifting its focus to mortgage advice.
The network has “around 1,000” appointed representative (AR) firms, roughly a third of which have full permissions across pensions, investments, protection and mortgages. It did not disclose how many individuals work for these AR firms, but wealth advisers will be required to either become directly authorised under the Bankhall umbrella, sign up with a new partner network or leave the group altogether.
It expects the mortgage network that remains to account for 25 per cent of the UK’s advised mortgage market.
One adviser, who has been with Sesame for over 20 years, said he would not join the replacement network – unconfirmed at the time of writing but rumoured to be Intrinsic – as there is “no point going from one network to another”.
In the adviser’s view, any investment advice network will carry similar liabilities: “Sesame can’t regulate end companies to the extent the FCA wants. The regulator is making it too difficult and will treat Intrinsic or whoever the same.”
He added that he feels forced to go down the Bankhall route and believes the majority of Sesame members will do the same.
Sesame would not be drawn on that speculation, but if the adviser is right, the FCA could be inundated with applications for direct authorisation, a process that can take three to six months under ordinary circumstances. Any resulting backlog could take advisers beyond the three-month notice period for which Sesame have agreed to continue providing support.
However, for applications to go direct – either with Bankhall or elsewhere – the network has told the adviser it will extend permissions for as long as it takes for appointed representatives to get appropriate authorisation.
Aside from the pressures arising from liabilities, Sesame has endured a torrid time with the regulator, attracting two significant FCA fines in recent years. A £6m penalty for systems failings in June 2013 was followed by a further £1.6m fine in November last year relating to ‘pay-to-play’ distribution deals.
UPDATE: Following a response from Friends Life, the total value of the increase in share capital has been revised from the originally quoted figure.