UK largest adviser firm fined £1.6m for 'pay to play' deals with fund groups

UK largest adviser firm fined £1.6m for 'pay to play' deals with fund groups

Sesame Limited, the UK's largest network of financial advisers, has been fined £1.6 million for making fund groups pay to be included on the panels of products its advisers could sell.

After City watchdog the Financial Conduct Authority (FCA) introduced the sweeping policy changes under the Retail Distribution Review (RDR), which strengthened requirements for independent financial advisers and banned the payment of commission for product sales, Sesame announced that it would adopt a restricted business model.

In plain English, this means it would only allow advisers to recommend products from a limited panel, rather than considering the whole market for what best suited their clients.

According to the FCA, Sesame asked investment companies to say how much they would spend on other services offered by the network, before deciding which firms to include on its panel.

tender process

Sesame ran a tender process asking providers what services they were prepared to pay the group for providing, and telling several that it expected them to spend an extra quarter-million pounds every year on services to be placed on one of Sesame's restricted advice panels.

When one provider included its service budget for 2012-2016, Sesame requested the provider increase its budget for services by £750,000 per year for 2014 through 2016.

The FCA argues that Sesame put its own business needs ahead of client interests, and effectively undermined the ban on commission brought in by the RDR, which sought to alleviate product bias towards better-paying fund groups.

Tracey McDermott, director of enforcement and financial crime at the FCA, says: 'Our reforms were designed to ensure advice is based on what is best for the client, not the adviser.

'Firms can have no doubt about the outcomes we were looking for here. Sesame's approach to inducements, in the face of a clear position from the regulator, undermined the rules in order to look after its own interests.

'If we are to move on in financial services we must see firms focusing on how they achieve the best outcomes for their customers - not adopting practices that avoid our rules.'

more responsive

John Cowan, executive chairman of Sesame Bankhall Group, says: 'We recognise that the arrival of the FCA's RDR introduced a step change in regulation and heralded a new relationship between product providers and distributors. As market leader, we should have been more responsive to the wind of change blowing through our industry.

'In January 2013 the leadership was changed and the new executive team has been implementing a new and more transparent policy, as well as building a robust operation that will serve customers better in the future.

'This has led to significant improvements in our processes and controls, with customers' best interests and quality outcomes placed firmly at the centre of all business decisions.'

In June 2013, the FCA fined Sesame £6 million for failures in its complaints handling procedures. In October 2004 it was fined £290,000 for failing to monitor one adviser within the network who was involved in 'pensions unlocking'.

Previously, the FCA announced it had dropped a similar investigation against advice firm Partnership.

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