After negotiating precarious waters, Sesame Bankhall has experienced something of a renaissance. Now its executive chairman and sales director want to focus on providing a more holistic service for its client base
“Revitalised and re-energised,” were the words John Cowan used when recalling how a major lender described Sesame Bankhall Group recently. Not before time as the past few years have been a rollercoaster ride for the network giant. There has been a change of ownership; huge fines from the FCA; a loss of some very senior members of staff; the ditching of its investment operations; and a lockdown on communication with not only the press but also its own advisers. However, it seems the water has now calmed and the trench mentality that ran through the network no longer exists.
So Mortgage Strategy met recently with Cowan, Sesame’s executive chairman, and its new sales director, Mark Graves, to set the record straight about what happened and where it is heading.
Up for sale
The uncertainty started around three years ago when Andy Briggs, the then chief executive of what was Sesame’s parent at the time, Friends Life, floated the idea of whether a provider should own a distribution company.
“At that point, effectively Sesame Bankhall Group were in play because staff, advisers, the competition and the press were saying ‘what is the future for Sesame Bankhall group?’,” explains Cowan. “Nobody knew what the future was but, to use a Glasgow expression, we were the talk of the Steamie.”
Friends put Sesame up for sale just before network was hit with a whopping £6m fine in June 2013 for failing to ensure its appointed representatives were giving appropriate investment advice and for failings in its systems and controls.
The issue lay with the Retail Distribution Review and the commission ban that came with it at the end of 2012. A number of different business models emerged and Sesame decided it would cost too much to control them all under one network.
“The RDR was coming along and what was emerging from the RDR was a bundle of different models of IFAs, so to try to herd them into one sort of network, we believed, was financially unviable and too difficult to control,” says Cowan. “We decided we needed to exit the wealth space and Friends Life board bought that argument.”
Following the fine, though, it became clear that the mortgage business was worth saving and that it made sense to offload its investment arm, as opposed to its mortgage network and its club, PMS, or Bankhall, its support services firm.
But a spanner was thrown into the works when Friends Life was sold to Aviva for £5.6bn.
Cowan lets slip a wry smile as he recalls the events, offering a little insight into the frustration the management must have felt at the time.
“Aviva acquired Friends and in its prospectus there was one paragraph: we’re not sure whether we want to retain this business, we don’t know what this business is,” he says. “It felt like Snakes and Ladders for us. We had worked really hard as a management team where we knew we were going to retain the business but Aviva acquired Friends and there was this killer paragraph. And in fairness to Aviva, why would they? They were buying Friends Life and were becoming accidental owners of Sesame Bankhall in effect.”
However, the Sesame board was allowed to argue its case with Aviva.
The Sesame management put a business case forward that simply read: “Hold, invest and grow.”
Aviva liked what they heard and pumped £45m into the network to cover any liabilities and restructuring costs.
“For us that was a huge tick in the box,” Cowan says. “That’s where our story really begins.”
With that backing came the end of a long and tumultuous journey for Sesame’s board, its staff and most importantly, its advisers.
The network then sought to re-engage with its appointed representatives.
Cowan says: “Because for the past two or three years the business has not really been sure of its direction, we haven’t really been engaging with advisers to say ‘how can we help grow your business?’. It’s a pretty stupid conversation to have knowing next week you’re going to sell the business.
“So we weren’t asking them what we were doing well and what we were doing wrong, we were just making sure we got our compliance right after our issues with the FCA. That was the focus of the business, but we have started asking advisers now.”
Graves was brought on board as sales director in December 2015 from Pink, via a one-month stint as managing director of The Right Mortgage and Protection Network.
Earlier in 2015 Sesame lost managing director of mortgages John Cupis, who joined Openwork, and his replacement, Lisa Martin.
So why then did Graves decide to join a network that had experienced such a bumpy ride in previous years?
“PMS is the best mortgage club in the country,” he asserts. “That business was an incredibly successful business but what happened is that for a period of time after John Malone left it there was vacuum. It was still good but it stopped going forward.
“I saw this business with incredible potential, good quality people in it, the number one mortgage club in the country. I thought I could add value to support John [Cowan] and all of the existing team and take it forward. And also, I knew good quality people who could come in and add to the quality already there.”
He has brought on 10 senior managers since his arrival and has set himself the task of seeing as many of the network’s 900 advisers, or 550 firms, as possible.
He adds: “[Now it’s about] listening to what they have to say and explaining: ‘This is why we haven’t been able to talk to you for the past year and a half’ – and we’ve still not finished that yet.”
As sales director, Graves is responsible for driving one of the largest mortgage distributors in the land.
The network and PMS mortgage club processed around £40bn of applications last year, which they claim equates to around 25 per cent of all intermediary lending. Moreover, some 3,000 directly authorised advisers now use PMS.
But what does the future hold?
Over the course of 2015 the network lost over 60 per cent of its ARs, although this was a result of its decision to pull out of investments.
One thing both Cowan and Graves are clear about, however, is that the new strategy does not involve chasing volume.
“The one thing we’re not going to do is play the numbers game,” explains Cowan. “We want to control the quality. If there is one thing we have learnt over the past few years it is about systems and controls. We want to absolutely make sure of the quality.”
The quest for quality is key to its new strategy. Cowan in particular believes some brokers are still “executing a product”.
“We want to help brokers become more than just transactional and retain contact with the client,” says Cowan. “Most people in this business are looking for clients but they already have clients. They’re a client for life if you do a good job for them.”
He adds that he would like to see brokers become “mini financial planners” in the sense that they offer supplementary services alongside the mortgage. This, he says, is going to be the focus of Sesame from now on.
He says: “I would really like to see them turn into a broader business. So they fix the mortgage for the client but say: ‘Actually, I am loading you up with a lot of debt, but these are the services I can offer you. I am going to talk to you about your mortgage, I am going to talk to you about your protection. It may be boring but it is really important to you to protect yourself and your family’.
“I believe if we could sort out the process with the lenders then we can release capacity and they could actually offer a more holistic service. They are not going to do pensions and they are not going to do investments, but they can talk to customers about everything they can as soon as they sit down.”
Recently many of the country’s biggest lenders have been beefing up their systems to make execution-only retention sales slicker. At the same time, lenders such as Nationwide and Halifax are offering video advice sessions.
But rather than seeing technology as a threat to the broker community, Cowan believes advice will always be necessary.
He says: “Will advice die or will it take a different form? I’m in the camp that says the adviser, if he does his job now, will be the man to go to when all of these digital initiatives come. Will people feel capable of making their own decisions? In the investment world some people do feel capable of going to Nutmeg or Hargreaves Landsdown but for the majority of the population it is a hell of a decision.”
Protection is an area that could benefit if brokers embrace technology, Graves believes.Many brokers say they do not have time for the protection sale or that the process is too clunky.
To that Graves says: “I’m never going to justify not selling protection but you can understand why some broker say they don’t have time to do it. You have got to eliminate all of the hurdles of why you don’t do a fully protected mortgage.
“If you can embrace technology and find a way to shorten the sale and avoid duplication of work then you have more time to do the protection sale. I don’t think advisers have got anything to worry about in terms of being taken out of the loop. I think if you embrace technology properly then you have got a better customer outcome because everyone will get a fully protected mortgage.
“We’ve got to get to a place where we are able to offer advice but technology can bring us in all of the standard information. Why shouldn’t we have permission from someone’s employer so we can get signed authority they can tell us all of the benefits they get at work? That automatically gets transferred and logged onto the system and builds into a score of whether you are in a better place in terms of risk of you taking a mortgage.”
Graves, something of a protection evangelist, also believes lenders should look more favourably on borrowers with protection in place.
“It’s not about making protection compulsory, but the one thing I can’t get my head around is why you can’t get more attractive terms on a mortgage if you have a policy in place. How wouldn’t that be, from a lender’s point of view, a better place to be in?”
Questions over the network model resurface from time to time and the FCA itself said it had issues with some of the governance and controls some had in place, although it did not point at any in particular.
However, Cowan is steadfast in his defence of the network model and says the fact Aviva has faith in his firm shows the model can thrive in the future.
“I was asked to speak about the future recently,” he says. “I see absolutely no evidence whatsoever that a collectivist business cannot run properly. I think that the reasons people came together still pertain today actually. Why did people join networks in the past? They got their compliance done for them, they got their research done for them, they got great deals. All of those reasons are still there… I don’t see any signs that the network model is under threat at all.”
Graves, though, believes networks “absolutely” must evolve.
He says: “It will go through a transitional phase and if it stays put I don’t think it will be in a great place. If it is fleet of foot, it needs to be flexible and, most importantly, it needs to listen to what members want. And if it doesn’t do that, it will fail. It has absolutely, definitely got a future. We just need to work out how to keep keeping pace with change.”