Primis network has served notice on one of its protection-only appointed representative (AR) firms leaving it potentially on the hook for £3.4m in commission clawback.
The network, which is part of the LSL Property Services group, said the notified firm was made up of two trading entities and the action had been taken after its 30 June reporting cutoff date.
Health & Protection contacted LSL with several questions about the action including the names of the firms affected and their current trading status, reasons for the action, the number of customers involved, the quality of advice delivered and if there were concerns about other firms.
LSL did not respond directly to any of the questions asked.
It told Health & Protection: “Primis served notice to one of its appointed representative firms as part of its normal course of business.”
The Financial Conduct Authority (FCA) has been becoming increasingly concerned about failures within the AR regime and how principal firms are overseeing their ARs.
Earlier this month the regulator noted principals had terminated relationships with 300 introducer appointed representatives (ARs) and 350 full ARs in its last financial year.
It also highlighted the need for improving oversight of appointed representatives within its letter to life insurer CEOs a year ago.
£3.4m potential exposure
In its interim results, LSL confirmed the group was responsible for commission clawback to protection providers should policies be cancelled within the indemnity period and would usually seek to recover these from the firms involved.
However, in this instance that appeared unlikely due to the trading position of the firms and so LSL was potentially liable for up to £3.4m, although this would reduce as indemnity periods expired.
“In light of the trading position of these AR firms, following notice being given, the Primis board considers it is not likely to recover all future reimbursement of commissions incurred,” it said.
It continued: “The group estimates the maximum cancellable commissions relating to relevant policies sold by these ARs is £3.4m.
“This potential exposure will continue to reduce materially over time as active policies go beyond the indemnity period, combined with the significant reduction in activity in the latter months of the firms trading.”
‘Robust’ protection performance
The details were released alongside LSL’s results for the first half of 2024.
During the January to June period it said protection performance was “robust”, with network protection revenue increasing by 3% to £5.7m from £5.6m a year ago after adjusting for disposed businesses.
Primis is also testing its new protection “e-sub” quoting service with a view to a more extensive roll out during the second half of the year.
“The use of this new quoting system will deliver benefits to members and incremental revenue to Primis in 2025,” it added.
Financial services profit slumps
Despite this, the financial services division, which includes the Primis network and TMA mortgage club, reported a 78% fall in operating profit from £10.3m to £2.9m.
Primis has also seen two key departures this year with chief operating officer Toni Smith announcing her departure today to rival Sesame Bankhall, while proposition director Vikki Jefferies moved to insurer Legal & General in the summer.
However, overall LSL pre-tax profit rose 86% to £13.8m from £7.4m at the same point last year.
It noted the increase was primarily due to the materially higher group underlying operating profit in H1 2024, offset by net exceptional gains in H1 2023 of £4.7m to a cost in H1 2024 of £0.1m.
It was charged £3.6m in tax, up from £2.1m, representing an effective tax rate of 26%.
TenetLime completion
The purchase of the TenetLime mortgage and protection network was completed on 2 February, adding 255 advisers across 151 firms.
This took the total number of network firms to 1,146 on 30 June 2024, from 986 a year earlier, with adviser numbers increasing to 2,847 from 2,718.
LSL said network firms had remained cautious on adviser levels due to challenging market conditions.
But it added the TenetLime purchase built on its share of over 10% of the UK house purchase and remortgage markets.
“We have been working hard to integrate TenetLime into our Primis business and are pleased with the way in which we have executed our plans,” it said.
“The transaction will be earnings enhancing in 2024. Our total share of the purchase and remortgage market in H1 2024 was a record at 11.1%.”
Further £2.2m in Pivotal Growth
LSL also invested an additional £2.2m in July into its Pivotal Growth joint venture with Pollen Street Capital to “continue to support its buy and build strategy” in the mortgage and protection intermediary markets.
The venture was launched in 2021 with a joint aim to build the business together and exit over a three-to-six-year period after launch.
LSL said having acquired 14 businesses, with five in 2024 including John Charcol which held 150 mortgage and protection advisers, and with more than 450 advisers in total, Pivotal was now one of the UK’s largest mortgage and protection brokers.
“We have invested £13m in Pivotal since 2021 and we continue to closely monitor Pivotal’s performance to maximise returns for shareholders and it remains on track to deliver returns ahead of the group’s weighted average cost of capital (WACC),” LSL added.
“Pivotal Growth’s underlying financial performance has steadily improved as it has increased in scale and moved out of its establishment phase.”
LSL’s share of losses after tax in Pivotal Growth was £400,000, compared to a loss of £200,000 in H1 2023, reflecting the higher transaction costs, but its trading EBITDA was £200,000 ahead of the same period last year.