LSL Property Services has included a £1.9m charge in its annual results after expelling a protection advice firm from its Primis network, with £1.2m to cover potential commission clawback.
The firm also suggested it was leaning away from the pure protection advice market to instead focus on working with smaller mortgage-led brokers.
The charge was included as LSL believes it will be unable to reclaim the amount from the ejected firm during the four-year indemnity period for which it is liable for policy cancellations.
However, the figure appears to be a reduction on the £3.4m provision that was included in the firm’s half-year results in September.
In the latest results LSL said it took the “decision to exit some firms whose business model was not in line with our risk appetite and strategic focus”.
As a result the number of protection-only advisers within its financial services division was reduced by 137.
“We incurred exceptional costs of £1.9m associated with the exit of a large protection only firm,” LSL said.
It further noted: “During the year, the group’s Primis Network served notice to one of its protection only appointed representative (AR) firms, made up of two trading entities.
“Given the trading position of these AR firms following the notice, the Primis board has determined that not all future commission reimbursements are likely to be recovered.
“Consequently, a specific provision of £1.2m has been recognised in the group’s balance sheet to reflect this potential exposure
“The group’s exposure will reduce significantly over time as active policies move beyond the indemnity period and due to the substantial decline in trading activity during the final months of the AR firms’ operations.”
The further charge of almost £700,000 was also included within the LSL’s AR-related costs which it attributed to bad debt write off and consultancy costs.
Health & Protection asked LSL several questions about the firms involved including the names, what the main concerns with their operations were and if any complaints had been made.
LSL declined to answer the questions or make any further comment.
Reduce focus on protection firms
Overall, LSL said its network protection revenue remained broadly flat at £12.9m after adjusting for disposals.
It added that Primis had taken the strategic decision to reduce its focus on larger pure protection brokerages to instead focus on its “core market, serving the needs of smaller, mortgage-led financial services businesses”.
It added: “The change in the split between mortgage and protection only advisers reflects the work we have undertaken to develop a clear focus for our future target market, as well as an assessment of the relative risks of providing services in these segments.”
At the end of the year, Primis members totalled 2,282 advisers selling mortgage and protection, up from 2,068 in 2023, with 421 advisers selling only protection and general insurance products, down from 558, bringing the total number of advisers to 2,736, up from 2,661.
TenetLime and Pivotal Growth
LSL also cited the integration of 145 advice firms from the TenetLime network which it purchased in February 2024, with both profit contribution and adviser retention in line with expectations.
The £10.3m deal includes a £3.6m payment based on the retention rate of firms within LSL’s Primis network 12 months after the transaction completed.
Shortly after completing the sale, Tenet Group L td, which had contracted with LSL to provide transitional support services as part of the deal was placed into administration.
As a result LSL incurred additional costs of £500,000 which it expects to recover, along with any future amounts, from the deferred consideration balance of £3.3m.
With regard to its Pivotal Growth joint venture, it said the body now has more than 500 advisers, “making it one of the largest mortgage and protection brokers in the UK, giving it critical mass to leverage its scale to attract deals and drive revenue synergies and profitability”.
During 2024 it purchased eight businesses, including John Charcol with 150 mortgage and protection advisers.
Financial services profits down, surveying up
The financial services division, which includes the Primis network, TMA mortgage club and share of Pivotal Growth, saw its operating profit slip by 8% to £4.7m from £5m.
Overall, LSL’s pre-tax profit saw a near five-fold increase to £23m from £4.9m in 2023.
This was largely driven by the surveying and valuation business which saw operating profit boom from £3.4m to £22.1m.
