Sesame, the UK's largest network of financial advisers, has been fined £1.6m by the Financial Conduct Authority (FCA) for setting up a pay-to-play scheme that "undermined the ban on commission payments brought in by the Retail Distribution Review (RDR)".
The pay-to-play scheme meant the range of products recommended to Sesame clients under its restricted 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.
In December 2012 the introduction of the RDR meant paying commission to advisers for selling a retail investment product was banned.
The regulator concluded that inclusion on restricted advice panels was influenced by how much providers were willing to pay Sesame for additional services
The change was to ensure customers receive advice which is not influenced by the amount of commission paid to advisers.
As a result of the reforms, Sesame decided that its network of advisers would offer a restricted service, recommending certain products from a panel of pre-selected providers, instead of offering products from across the whole market.
To establish these panels, Sesame ran a tender process in which it asked providers what services they were prepared to pay the Sesame Group for providing.
During the selection process, the FCA found Sesame told a number of providers that it expected them to spend an extra £250,000 a year on services to be placed on one of Sesame's restricted advice panels.
In one case, a 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 the firm requested that the provider increase its budget for services by £750,000 per annum for the years 2014 to 2016, the FCA said.
As a result of the tender process, the regulator concluded that inclusion on restricted advice panels was influenced by how much providers were willing to pay Sesame for additional services.
This practice had the effect of undermining the ban on commission payments.
In so doing, Sesame failed to manage the conflict between its commercial interests and those of its clients, the FCA said.
Tracey McDermott, director of enforcement and financial crime, said:
"Firms must place customers at the heart of their business. Our reforms were designed to ensure advice is based on what is best for the client not the adviser.
"Firms can have had 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 focussing on how they achieve the best outcomes for their customers - not adopting practices that avoid our rules."
Sesame settled the case at the first opportunity and, as a result, qualified for a 30% discount.
Were it not for that Sesame would have been fined £2,282,902, which reflects the fact that this is the fourth time the regulator has had to fine the network.