Clients who buy the same protection products via Sesame could pay vastly different premiums amounting to thousands of pounds more depending on which of the network's two types of adviser they deal with, an investigation by COVER's sister title Professional Adviser has revealed.
An analysis of premiums and commissions found that premiums for protection products sold by Sesame's 'restricted focussed' advisers can be as much as 13% higher than for an identical product sold by its ‘universal' advisers.
The investigation had been prompted by concerned Sesame advisers.
Providers have said the differences are down to Sesame, not them.
Over the 20 year lifetime of those products, the couple using the focussed adviser would pay £11,544 more than if they had gone to a Sesame universal adviser
Sesame Bankhall group chairman John Cowan said the model of charging higher premiums in one part of a business over another is "the general market position, it pertains inside all sorts of financial services businesses".
But advisers have suggested the approach may not represent treating customers fairly (TCF).
All Sesame advisers are 'restricted' by the regulator's definition, but the network operates two advice models within that.
The first is 'universal', a whole of market arm which largely houses those Sesame advisers who were independent under the pre-Retail Distribution Review (RDR) definition of the term. The second is 'focussed', a much smaller proposition for advisers who must pick products from a panel of around six providers.
In illustrations provided by Sesame advisers to Professional Adviser, for an individual, 15-year £200,000 life insurance policy for a male, non-smoker born in the 1960s, the difference in the monthly premium paid by a client of a 'universal' adviser can be about £5 less than a client transacting with a 'focussed' adviser, depending on provider.
Over the lifetime of the policy, that means the client would pay around £1,000 more with a Sesame restricted focussed adviser.
However, the difference is even starker in the example of a couple where critical illness (CI) cover and a waiver of premium - known as premium protection - have been added.
In another illustration, for a husband and wife who are both non-smokers and are both aged 49, buying 20-year life insurance with CI cover and premium protection using a Sesame focussed adviser, the monthly premium is £418.
For the same couple, taking the same products, from the same provider, but using a Sesame universal adviser, the monthly premium is £369 - 13% less.
Over the 20-year lifetime of those products, the couple using the focussed adviser would pay £11,544 more than if they had gone to a universal adviser.
The model
Focussed protection advisers must choose products from a panel of just six providers: Aviva, Aegon, Bright Grey, Zurich, PruProtect and Friends Life. Universal advisers typically choose from around 13.
There is no requirement for a Sesame focussed adviser to tell a client they could buy the same product cheaper from one of the network's universal advisers.
The amount of commission paid by providers for products sold via Sesame's focussed advisers is also significantly higher, as commissions are linked to premiums.
In the example of the couple above, the difference in the upfront commission paid is almost £5,000.
Commission is paid by the product provider directly to Sesame, which takes its cut before passing the remainder onto the adviser.
According to Sesame advisers, the network takes a single digit percentage of the per product commissions earned by universal advisers, but a percentage around three times higher on the greater commissions paid by providers for products sold by focussed advisers.
Protection advice was not included in the commission ban, meaning advisers can still get paid by the providers of the products they sell.
The amount they get paid must be disclosed to clients, but - like with the premiums - clients would not realise the different amounts being paid for the sale of products via focussed and universal advisers.
Sesame Bankhall group chairman John Cowan said the model of having higher premiums and commissions in some parts of a business "is not exclusive to Sesame".
"It is the general market position. It pertains inside all sorts of financial services businesses. Certain business models are constructed in different ways. Different premiums are paid for products. The different price is due to differences between the universal and focussed advisers' business models," he said.
"Out of the higher commissions, professional indemnity (PI) cover is bought for [focussed advisers], regulatory fees are paid. But focussed advisers run a business for which they can charge a premium for."
He added that the focussed part of the business is "tiny", with less than 50 advisers choosing that model. Sesame has around 2,000 adviser members in total.
He defended the lack of disclosure to clients about the difference in price and commissions between Sesame's focussed and universal advisers.
"When someone goes to a universal adviser they don't have a conversation about restricted versus independent. It's the same when an adviser is restricted focussed. The world doesn't work like that. If I go to an IFA in London and Poole I'll get charged a different price for the same service," he said.
But advisers said the model is more akin to two clients being charged differently for the same service by the same adviser.
One, who asked not to be named, said: "What doesn't sit right with this scenario is that we are effectively talking about the same distributor. Different adviser firms, but the products being distributed are being facilitated via the same network. If these were rival distribution channels, say IFA versus non-advised, then all's fair in love and war. But in this scenario the two advisers are operating under the same umbrella."
The providers
Asked why providers who feature on the focussed protection panel were willing to pay higher commissions, Cowan admitted it is probably because they think they are going to do more business due to the restricted nature of the options available to the advisers using it.
"The provider is paying higher commissions probably because they think they are going to get a lot of business from the focussed panel. Loads of life companies operate that system. We couldn't offer that unless the life companies are offering that. It must be profitable for them," he said.
The Financial Conduct Authority (FCA) fined Sesame £1.6m in October after it found the network had set up what it termed a ‘pay-to-play' scheme, relating specifically to the panel used by its focussed investment advisers.
The range of products recommended to Sesame clients under its focussed investment advice service was influenced by the amount product providers were willing to pay Sesame for certain services, the regulator ruled, saying it "undermined the ban on commission payments brought in by the RDR".
All seven product providers on Sesame's ‘focussed' restricted investment advice panel denied breaching the regulator's rules on inducements.
Professional Adviser spoke to each of the six providers on Sesame's restricted focussed protection panel. All of them refused to discuss their commercial terms.
However PruProtect, which gave the most detailed response, said the difference in premiums is down to Sesame.
"Networks and other distributors ask insurers for different pricing strategies for certain circumstances, it would be a question for the network or intermediary as to why they do so," a spokesperson for PruProtect said.
"We have a standard price (premium) which we set but some distributors ask for different pricing to suit certain strategies. Networks would tend to do this at group level rather than by individual adviser. It's a question for the network as to what their strategy is and why they need differentiated premiums," he said.
On the difference in commissions he added: "While we do not comment on any specific arrangements, it is common practice for protection insurers to vary the level of commission paid to intermediary firms depending on a range of different factors and commission payments are fully disclosed within all quotes provided."
Aviva, Aegon, and Friends Life said only that they would not comment on commercial terms with individual distributors.
A spokesperson for Zurich said: "Zurich works diligently to ensure that all of our arrangements with key distributors and third parties deliver good outcomes for our customers. We consider the overall business opportunity of each distribution model separately and so the commission terms will vary between different agreements."
Bright Grey also said the differences between the restricted focussed commissions and premiums and those of the universal proposition were negotiated by Sesame.
"Our distribution partners offer a range of different protection propositions, each of which is underpinned by different features and services such as technology, training, compliance and research.
"The distributor may choose to operate each proposition on a different commercial basis and request and agree different commercial terms with providers," a spokesperson said.
