AMP has started the process of notifying advisers of their intention to cancel their authorisations. The move was confirmed yesterday by an AMP spokesperson although they declined to comment further and did not specify how many notifications have been sent out to date. Some media reports say the termination notices have been sent to hundreds of AMP aligned planners already. Meanwhile, The AMP Financial Planners Association (AMPFPA) may engage a litigation funder to help underwrite a class action against AMP Limited in regard to the companies changes to their Buyer of Last Resort (BOLR) scheme.
In an internal email to advisers, Alex Wade, AMP's head of wealth management, said that it had become clear that some advisers were not going to meet new regulations imposed by the government to abolish commissions and increase compliance.
AMP confirmed the contents of the email which stated "We have identified a number of practices that won't make it through this transition because their business economics simply aren't strong enough…we have started communicating to those that will no longer be licensed by AMP in the future".
AMP recently announced an aggressive restructuring plan that included lowering the agreed guarantee to its aligned advisers to buy back their client registers from 4 times revenue to a maximum of 2.5 times. The IFA published the account of an anonymous AMP advisers onerous experience of lodging a BOLR application earlier this year. The adviser said “AMPFP does not want to pay…they have delayed my health release and kept placing additional obstacles in my way so I could go past 9 August, when they changed the BOLR arrangements and reduced revenue from 4x to 2.5x."
AMP responded by saying “Advice practices with a higher proportion of grandfathered commissions as part of their revenue will be the most impacted by the buyback changes compared with those who have moved their business and client relationships to more contemporary fee structures”.Their statement continued, “We care about the welfare of our advisers and are treating this situation with care, empathy and respect. We continue to support advisers with a range of initiatives through this period.”
AMP has signalled it expects to spend $550 million on "adviser retention and support" as well as client "register acquisitions" over the next 18 to 24 months. AMP’s CEO Francesco De Ferrari said the group planned to spend over $1 billion as part of resetting its new wealth strategy.
That amount could become greater if a potential class action from AMP’s aligned advisers successfully comes to fruition. AMP Financial Planners Association (AMPFPA) chief Neil Macdonald said advisers now faced defaults on loans that had been based on the original more generous buyback terms. "We've got people who borrowed maybe a million dollars to buy a register that AMP told them was a good idea to do, and now that million-dollar loan is still outstanding, but the asset backing is worth $500,000,"
In a letter to members, AMPFPA said in its view of how the BOLR Policy operates, members had a range of potential legal claims against AMP including with regards to timing and notification of the changes and also for damages resulting from AMPs conduct. The letter also asked members whether they would be willing to contribute to a fund to pay for a class action or interested in turning to an external specialist litigation funder - or engage in a combination of both. The group acknowledged that its members may choose to take their own legal action and also that potential claims might be capable of being resolved by way of a negotiated agreement with AMP.
Speaking to Professional Planner about AMPs new strategy, Wade anticipated that there will be a lot of noise from advisers within the network as they come to grips with the revised valuations of their businesses. The aggressive nature of the company’s “re-set” and their desire to draw a line under the past 18 months of disastrous headlines and performance – which has seen its market value fall by more than two-thirds and the loss of billions of dollars in fund outflows should not be underestimated.
Admitting that AMP would not be able to judge the success of their new strategy for 3 years, Wade was simultaneously bullish and hopeful - “The fact is we faced into the past, we wrote off a truck load of money to address the legacy and do a reset. We’ve announced we are going to invest a huge amount in the go forward. I hope that will give people confidence – not just investors, or partners – that this is going to be different”.
Time, as always, will tell.