Quilter saw its profits slashed in half while 141 advisers left the firm after deciding they did not want to become restricted in the first six months of 2021.
The network said its protection revenue had improved during the period, but also added a further £7m to its potential bill for unsuitable pensions advice by Lighthouse.
Overall, Quilter reported an after-tax profit of £20m for the first half of 2021, down 53% from the £43m during the same period last year.
The firm is in the process of selling its international arm and when this business was stripped out Quilter reported a £13m loss after tax, reversing an £11m profit between January and June 2020.
Quilter shares dropped more than 6% by 1pm today from yesterday’s close of 168.9p – the highest level since Feb 2020 when they peaked at 172.9p.
Protection revenue and £7m pensions bill
Mortgage and protection advice revenues improved due to the heated residential property market driven by the stamp duty cut, but this led Quilter to warn of “a more muted contribution from this business activity in the second half”.
Quilter also revealed it expects its bill for poor pensions transfer advice provided by Lighthouse to balloon by a further £7m – a skilled person review into the subject is ongoing.
“Our focus remains on doing the right thing by any customers who were poorly advised, even though this advice predates our acquisition of Lighthouse,” the network said.
“The skilled persons review has identified some instances of further unsuitable defined benefit (DB) to defined contribution (DC) advice given by Lighthouse advisers beyond that relating to British Steel Pension Scheme transfers.
“As a result of this, we have increased our provision by £7m to cover the potential for additional remediation together with the associated costs. We expect the skilled persons review to conclude in the first half of 2022.”
Adviser numbers down
The firm is in the middle of a significant restructuring which is moving all advisers in the Quilter Financial Planning arm to a restricted advice model with a focus on “improving adviser productivity”.
As a result, Quilter revealed that its restricted adviser numbers fell from 1,842 at the end of December 2020 to 1,701 at the end of June 2021.
“We wish to ensure that restricted advisers within our network are fully aligned with our integrated proposition and that those advisers within the network who have remained independent have a pathway towards adopting restricted status where appropriate within a reasonable timeframe,” it said.
“While our work to reshape our advice business is ongoing, we expect the rate of attrition in adviser numbers to reduce in the second half before returning to a growth path from 2022 onwards.”
Quilter said the process was showing signs of productivity improvement as, combined with stronger markets, net client cash flow per adviser increased to £2.2m from £1.6m and £1.5m in the comparable periods of 2019 and 2020 respectively.
On track to meet targets
Overall, Quilter chief executive officer Paul Feeney said he was pleased with the interim results.
“We delivered improved profitability in 2021 while absorbing the unwind of the tactical cost savings implemented in 2020 and higher Financial Services Compensation Scheme (FSCS) levies,” he said.
“We have been repositioning our advice business to ensure a greater focus on productivity. In addition, we expect to continue our investment in simplifying end to end processes and strengthening controls within our advice business.
“This has led to a decline in the number of advisers with an associated impact on revenues.”
Feeney continued: “As well as making important progress on our strategic initiatives, we also delivered robust financial results, with further operating efficiency improvements from our optimisation initiatives.
“We are ahead of where we planned to be at this stage and are on track to meet our operating margin targets of 25% in 2023 and 30% by 2025.”