Sesame Bankhall Group (SBG) has lost almost 60% of its network's member firms in the wake of a decision to kill-off its problem-laden investment advice business.
After a string of issues including two fines from the regulator and being forced to carry out a far-reaching review of past pension advice, Sesame announced in March it is closing its network proposition for pension and investment advisers.
Network members were given five months to decide whether they wanted to stay part of the group as a directly authorised adviser buying compliance services, but not liability protection, from SBG's Bankhall arm.
One hundred and five advice firms chose this route, just 30% of the former network, according to figures from SBG.
Sesame refused to reveal how many individual advisers are within those firms. At one point SBG boasted on its website of having the "largest appointed representative network in the UK with over 3,000 advisers".
Easier option
Switching to Bankhall would have been an easier option for advisers, to avoid having their trail income frozen for several months as is generally the case for those leaving SBG.
Sesame also promised to pay a portion of their regulatory fees, and not to lay professional indemnity (PI) insurance excesses at the doors of advisers staying within SBG who may have negligence claims bought against them as a result of the past pension advice review, Project Minerva.
But 16% of the former Sesame network - 55 firms - shunned the group completely, choosing instead to cut ties and leave.
A further 150 firms - 43% of the network, or 220 individual advisers - left for rival Intrinsic, in a bulk deal negotiated by Sesame under the same preferential terms offered to those moving to Bankhall, uninterrupted trail plus the waiving of PI excesses.
In total, 59% of the advice firms previously part of the Sesame network have left SBG, according to final figures from the company.
Forty advice firms - 11% - decided to drop the permissions enabling them to advise on investments and become solely mortgage and protection advisers under the Sesame MGI brand.
'Very happy'
John Cowan, chairman of SBG said he is "very happy about the value of firms that are staying with Bankhall".
He added that "those firms who have either gone to Intrinsic or other networks are probably not ready to go directly authorised".
However questions have been raised over the contracts on offer to exiting Sesame advisers considering buying-in the support of Bankhall, issues that may have contributed to the low take up.
They included clauses forcing advisers to sign up to Bankhall for a minimum of two years with first-year fees of more than £20,000 for a business with a turnover of £300,000, much higher than rival support services providers SimplyBiz or Threesixty.
Downward spiral
After two years of firefighting, SBG is now structurally unrecognisable from the business it was a little over two years ago.
Changes have been sparked by a downward spiral that began in June 2013, when the network arm Sesame was fined £6m by the Financial Conduct Authority (FCA) for failing to ensure advice given to its clients in relation to collapsed investment scheme Keydata was suitable.
That year the network reported losses for 2012 of £9.3m - four times its losses for the previous year.
These losses would swell to £19m in 2013, cut back to a £5m loss in 2014, though only after SBG parent Friends Life pumped £25m into the business to cover a "strategic review" of its problems.
After the £6m FCA fine, SBG dropped its mandate to offer independent financial advice in November 2013, in response to what then SBG chief executive George Higginson (pictured) called the FCA's "tougher and more intrusive regulatory approach", as well as the watchdog's ongoing thematic review into how firms have implemented the Retail Distribution Review (RDR).
An SBG ban on Sesame advisers selling 'non-mainstream', higher risk products like unregulated collective investment schemes (UCIS) followed in January 2014, just before Higginson stepped down.
SBG set aside £31m in August 2014 for possible customer redress.
But none of it was enough to stop more regulatory action.
In October 2014 the FCA fined the network £1.6m for setting up a pay-to-play scheme that "undermined the ban on commission payments brought in by the RDR".
Finally in March this year SBG announced it was ditching its investment and pension network altogether.
The Sesame network is now comprised only of 1,000 mortgage and protection advisers, and around 1,500 directly authorised advisers using Bankhall.
Takeover pressure
Cowan said the move was a last ditch attempt by SBG to survive Aviva's takeover of the advice business' parent Friends Life, in a £5.6bn deal announced last November and completed in April.
"Aviva looked at Sesame's business case. We said ‘if we removed ourselves from the wealth market, build our business around our mortgage advisers and the fantastic business we have with Bankhall, we believe we can get free of past distractions'," Cowan said.
"We need the support of our parent saying they believe in the management and the business."
The debt-laden network has been given access to a two-year £45m bailout fund by its parents Aviva and Friends Life to pay "any liability" any part of the group is unable to meet.
Cowan said it is still not clear how big the liabilities arising from Project Minerva will be.
But Aviva said in a note to shareholders before sealing the deal with Friends Life that it is not part of its strategy to provide "open-ended" financial support to Sesame, a business Aviva said would have gone under without Friends' financial support.
"Unless the directors of Sesame are able to reach a solution that does not require continued reliance on the financial support of the Friends Life Group, or following completion of the Proposed Acquisition, the Enlarged Aviva Group, it is likely that the Sesame business will no longer be viable and will not be able to continue to trade," the note said.
'New business'
Cowan said he is confident "a new business is emerging" from the ashes of a group that once laid claim to being the biggest advice network in the UK.
"We are still making our way through [Project] Minerva. We're not going to get to a place where we think all the risk has gone with the wealth side. We know the regulator is looking at mortgages too," he said.
"The RDR was a game changer. It was more difficult and expensive to manage the network model.
"[Running a network] was like trying to nail jellyfish to the wall."
Further reading:
Majority of advisers gain less than 25% of income from protection
Three-quarters of advisers say protection sales will increase
Aviva: Friends deal will add £600m to the business in two years
Questions raised over Sesame protection premiums and commissions
