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Sesame restricted panel providers all deny breaching FCA inducement rules

by: Laura Miller
  • 06/11/2014
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Sesame restricted panel providers all deny breaching FCA inducement rules
All seven product providers featured on Sesame's ‘focussed' restricted advice panel have denied breaching the regulator's rules on inducements.

Last week the network was fined £1.6m for selling the coveted spots on its restricted panel to the highest bidders.

The spotlight has swung onto Aviva, Zurich, Prudential, Aegon, LV, Scottish Life and Partnership, after the UK’s largest network of financial advisers was found by the Financial Conduct Authority (FCA) to have set up a pay-to-play scheme. The scheme is said to have “undermined the ban on commission payments brought in by the Retail Distribution Review (RDR)”.

The scheme meant the range of products recommended to Sesame clients under its restricted focussed advice service was influenced by the amount product providers were willing to pay Sesame for certain services, the FCA found.

Sesame promoted its own commercial interests over the interests of its clients, the regulator said, reaping £16m over two years from the scheme.

But the FCA made clear in its final guidance paper FG14/1, ‘Supervising retail investment advice: inducements and conflicts of interest’ published in January, that providers found to have engaged in such agreements are as culpable as the distribution firm that uses them.

“A provider making, or an advisory firm accepting, any payment will create the risk that such a payment is not in line with our rules,” the paper stated.

“The making or receiving of such payments will require both firms to satisfy themselves that they comply with the COBS inducements rules.”

To establish its restricted advice panels, Sesame ran a tender process in which it asked providers what services they were prepared to pay the group for providing.

The FCA noted at least one case where an unnamed provider included its budget for services from Sesame, for the years 2012 to 2016, in its initial response to the tender. Sesame reviewed the response and requested that the provider increase its budget for services by £750,000 per annum for the years 2014 to 2016.

However all of the seven providers have said they acted within FCA rules.

Aviva, which features in 11 of the 14 categories on Sesame’s focussed advice proposition panel from January 2014 – more than any other provider – said: “We have robust procedures in place which ensure that we comply with FCA rules and guidance.”

Zurich, which features twice, said: “Zurich works diligently to ensure that all our arrangements with key distributors and third parties adhere to both the letter and spirit of the regulations and guidance, therefore mitigating the risk of creating conflicts of interest as a result of these arrangements. Zurich’s policy is not to pay any distributor to be part of a panel’.

Prudential, which appears six times, said: “Prudential, in common with the majority of product providers, participates in a broad range of intermediary propositions.

“In common with other product providers, we were asked by the FCA to report details of payments made to intermediaries under the provisions of COBS 2.3.15G as part of their thematic review of inducements. We approach all agreements with distributors with consideration of both the regulations and the intent of the regulations as understood at the time. We have not been subject to formal notice of investigation or enforcement action in relation to any payments made to distributors.”

Aegon, which appears four times, said: “We did not pay to be on Sesame’s panel, we entered into a contract for services in line with our distributor inducements policy and the FCA’s inducement rules.

“The services we agreed with Sesame were around adviser development and training and included presentations, training seminars and both printed and electronic resources to support adviser development and improved customer outcomes. These services are consistent with the services permitted by the FCA’s rules on inducements.”

LV, featured five times, said: “LV was aware of the FCA investigation into Sesame, and we liaised with the FCA openly regarding our arrangements with them. LV was not subject to an enforcement investigation, and no action was taken against LV on these matters. At LV we work hard to ensure we are acting within the regulatory framework, and we continue to examine our procedures to ensure we do not breach the new inducement rules.”

Scottish Life, which appeared five times, said: “We are not being investigated by the FCA. We were not involved in paying-for-playing. We competed on product features and special terms.”

Partnership, featured once, said: “We do not have an in-depth knowledge of Sesame’s discussions with the FCA and thus are not in a position to comment on those discussions or that investigation. We can confirm that we, along with a number of other providers, do work with Sesame. We would reiterate that we are confident that all of our agreements comply with FCA rules and guidance. We have stringent systems in place to ensure this remains the case across the board.”

Sesame is currently undertaking a review of its resticted provider panel to investigate whether any customer detriment occured.

Executive chairman John Cowan said the network is “not alone” in using a pay-to-play scheme.

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