The Australian Small Business and Family Enterprise Ombudsman’s response to questions on notice from the parliamentary joint committee indicated that AMP Bank offered authorised representatives of AMP Financial Planning up to a 100 per cent loan-to-value ratio (LVR) on practice finance to acquire client books sold within the internal AMP network.
“AMP ARs advise that the loans they were provided with were based on an internal off-market rate by mutual arrangement between AMPFP and AMP Bank, to attract and retain advisers with the intention of developing a career-long association with AMPFP,” ASBFEO said.
“AMP Bank offered 80 per cent LVRs and in some cases up to 100 per cent.”
The comments came from information gathered by the ombudsman as part of its role in mediation efforts for more than 100 advisers who were terminated by AMP in 2019 as part of its advice restructure, and sought assistance from ASBFEO.
The 2019 changes saw the institution revise its BOLR terms from four times to 2.5 times annual revenue, and AMP has since removed BOLR agreements from its advice model altogether.
The ombudsman said following termination, a number of advisers had been unable to refinance large debts owed to AMP Bank because the rates and terms of the loans held by advisers were not consistent with commercial finance offered in the broader market.
“Eleven AMP ARs have reported to our office that they sought to both refinance their AMP AR loans and have sought alternative financiers for their purchases of client books, but that they were unable to find alternative finance providers,” ASBFEO said.
“AMP ARs looked at similar options from other banks and found that NAB and Macquarie Bank used registers purchased as security, but with LVRs around 60 per cent.”
The wealth giant has previously been criticised by the ombudsman and has had several complaints lodged by advisers at AFCA around the terms of practice finance loans provided through AMP Bank and the close relationship between AMP Bank and AMP Financial Planning.
In its responses to the committee around the question of a conflict of interest between the two entities, ASBFEO said that while “different divisions of AMP would have appropriate separations and independence”, advisers had been led to the impression that in some instances they were one and the same.
“It is clear through discussion with AMP ARs that the close relationship between AMPFP and AMP Bank encouraged a perception by AMP ARs that they were receiving special treatment, and would not have received the same treatment from a non-AMP-related bank,” the ombudsman said.
“While it may be arguable that the separation between the entities was not as clear as may be desirable – for example, AMPFP representatives who were selling client books to AMP ARs would ‘introduce’ those ARs to AMP Bank representatives – we note that onboarding into AMPFP as an AR, and seeking a loan from AMP Bank required separate processes and AMP ARs were given opportunity to seek external advice.”
So much of this needs to taken on balance. The old AMP system of BOLR and preferential loans etc worked fabulously for a huge number of their advisers. Book arbitraging, low loan rates, unique LVRs all worked in the advisers favour. Was it all non commercial – of course it wasn’t, but it worked. In the non AMP world advisers were often putting their house up for security but the AMP advisers didn’t. Did any adviser really think there weren’t strings attached? When everything was going their way they loved the system but the financial advice environment changed and therefore the terms etc had to change as well. A lot of the advisers who entered into the AMP terms should have been more commercially astute and not locked themselves into AMPFP and AMP Bank as a unit. A lot of AMP advisers financed their books externally under commercial terms because they did their due diligence.
I feel sorry for some of the advisers who got caught but if I am being commercial ( there’s that term again ) if any adviser didn’t do appropriate research for their own business how can one expect them to be offering the best advice for their clients? We live and work in a tough environment and at the end of the day we are responsible for our own future.
Extremely well put. I would add ‘why did they sign the extremely one-sided contracts associated with these deals’?
It is all part of the AMP process. Get them in, saddle them with large debts, tell them that they can sell via BOLR at any time but,it was all smoke and mirrors. The weaponized audits, non-commercial terms, and the removal of BOLR without notice. And of course, our compliant government is treating AMP as if it is too big to fail.
“[b]tell them[/b] that they can sell via BOLR at any time”. Surely no-one would make a high risk business investment simply on the basis of what they were told? Yet unfortunately many did this rather than carefully reading all the documents and independently researching the business.
Both the government and AMP have many faults. But it’s not the government’s responsibility to intervene in risky business investment decisions regardless of who’s offering them.
To agree – that is why there is legislation about unfair contract terms imposed by the stronger party. But, yes, the terms were unfair but they were not imposed as you could go elsewhere.