Yes it does, providing you post the application before the fiance visa expires. Your wife will be protected under Section 3c leave, regardless of how long it takes to process the FLR(M) application.
Note that since the fees were previously posted in this thread, they have increased to £993 for a postal application or £993 +£590 if submitted in-person at a PSC, Both also require an additional payment of £500 for the IHS surcharge.
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