Advice given to AMP advisers suggests that the legality of the effective devaluations of their businesses via AMP’s controversially amended Buyer Of Last Resort (BOLR) arrangements may be contestable. A lawyer representing a number of effected advisers says that the BOLR arrangements may be just part of a suite of interrelated contracts and ancillary documents which contribute to the relationship between AMP and their authorised advisers, so the options advisers have regarding accepting AMP’s offer is not necessarily narrow or limited.
Dan Mackay of Mackay Lawyers & Advisers, based in Melbourne, has written an analysis of the BOLR situation in Money Management,and says that ‘Advisers shouldn’t just accept the position AMP has constructed as a fait accompli’.
Mackay said that this is particularly the case when advisers relied on the security of the 4X put option when they purchased their businesses or client books…
“It is highly likely that Advisers relied upon the security of the ‘4X’ BOLR put option when they purchased their businesses or client-books, in many cases borrowing amounts based on the 4X value. The stark reality now, is that AMP’s unilateral revisions to the BOLR terms means Advisers may have negative equity in their businesses against their debt.”
Mackay argues that along with the reduced BOLR terms, AMP are reported to be making other changes, such as the multiple on grandfathered commission being reduced to almost zero months in advance of the regulatory changes behind it and heightened attention to “seemingly innocuous compliance administration issues” that may affect valuation. The “speed and vigour” of AMP in making these changes, should not indicate to advisers that their legal rights and obligations are limited.
It is common for contractual arrangements between AFS Licensees and large authorised representative adviser groups to be constituted by a suite of interrelated contracts and ancillary documents, including policies, according to Mackay. Given this was the case with AMP and their authorised advisers, he says that interpreting multiple documents together, as opposed to a single document, increases the risk of inconsistency and the potential for terms to be implied, varied or even ignored by a Court.
Mackay writes that “under the Corporations Act 2001 and its financial services laws, it is AMP who is responsible to ensure that advice given under its licence is provided ‘efficiently, honestly and fairly’. Where it isn’t, AMP is responsible under those laws. It is arguable that AMP’s liability, problems with its financial services business model and related losses of shareholder value, are ultimately because of its failure in oversight and compliance with the law.”
The implication is that if the BOLR revision and other associated write downs are part of AMP attempting to “transfer of offset” some of the “financial downside” of the problems with its business model, remediation costs and commercial pressures, then that attempt should be tested in court.
A cynic - and there are plenty out there, may conclude that this piece was written by a lawyer attempting to drum up more business. But given there have been reports that some AMP advisers could be forced to sell their homes to pay back business loans to AMP Bank, there is no doubt that some advisers may be desperate to find an alternative solution to their circumstance.
The problem for the layperson with regards to the law is that wherever justice may lay in terms of the courts point of view, you would imagine that it would come at a considerable cost. There are hundreds of advisers effected by this situation, and potentially millions at stake. One would think AMP would vigorously defend any action against it that would further dent its reputation and balance sheet.
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"Taking on a corporate behemoth in court would not be something to pursued lightly. But in saying that, when people are backed into a corner who will potentially lose everything - what else is there to lose? The legal advice here seems to again be cognascent of the differences in individual contacts in each situation - maybe harder for class actions? AMP could be trying to play hardball at the start to thin out the number of potential reparations they might have to make to advisers later on. Good luck to all advisers involved."
MB 15:18 on 09 Oct 19