Lighthouse sets aside £2.5m for customer redress

Lighthouse group has set aside £2.5m to cover expected mis-selling claims from clients and closure costs as it winds down one of its adviser network businesses.

The group has made the provision for Falcon IFA, which had been trading for 28 years but has now been "rationalised" with LighthouseXpress, another network proposition, to form Lighthouse Adviser Services.

Group executive chairman, David Hickey, said a portion of the £2.5m was to cover what he said would be certain claims from clients against Falcon advisers over the next five years.

He would not disclose how much of the provision was for redress and how much for expenses related to the closure of the company.

"Falcon's been around for three decades," he said. "There is no cap in terms of liability. There is no six-year statute of limitations. A customer can come out of the woodwork after ten years and say: ‘I'm not sure I should have been invested in this. I may have been mis-sold'. There are times when that's just a try-on, frankly, but there are times when an error has been made and we look at some sort of redress or restitution.

"We are definitely expecting to see claims or we would not have made a provision. But if you're asking which clients for which products in which years I haven't a clue.

"We have done hundreds of thousands of transactions and have tens of thousands of customers [at Falcon]. The provision has been made in the hope it should cover anything coming out of Falcon over the next five years or so. It is a large number but it's been a large number of years trading. It's a litigious industry, but it's only £100,000 per year if you look at it."

The announcement comes as Lighthouse group, which also has a large national IFA proposition - Lighthouse Financial Advice - and a number of ‘affinity' relationships announced a jump in profits in the first six months of the year.

The group saw earnings before interest, taxes, depreciation and amortization (EBITDA) rise to £967,000 in H1 against £648,000 in the same period last year.

This was despite a 5% reduction in revenues as a consequence of "less productive" advisers leaving the group, Lighthouse said. Adviser numbers during the period fell from 820 in the six-month period last year to 713 this year.

Counting the £2.9m provision for Falcon (which includes £400,000 of expenses already incurred), the group made a loss before taxation of just over £2.4m in the first half of the year. This was against a profit of £117,000 in the same period in 2010.

Hickey said he was pleased the business was turning a profit (after non-recurring charges).

"It's a tight margin industry," he said. "We keep 2p in every £1 in turnover. It's not like an advertising business where most of your turnover is profit. To be able to show rising profits is crucial."