Australian Small Business and Family Enterprise Ombudsman Kate Carnell said a key concern in the ongoing mediation process between AMP and terminated advisers was “that AMP Bank doesn’t behave unreasonably”.
“We will keep a close eye on that – AMP Bank could call on loans based upon the fact that the BOLR was reduced, so the amount of money coming out the other end, the loans will no longer have the security of the BOLR,” Ms Carnell said.
“As we believe strongly that AMP caused that problem, we think it is important that AMP Bank, as they address ongoing loans, are reasonable.”
Just 18 of the 60 cases referred to mediation by ASBFEO have settled so far, with 15 still in progress, five failing to reach a satisfactory outcome and 25 being withdrawn.
The Adviser Association’s Neil Macdonald said AMP was assessing the personal financial position of the terminated advisers as part of the mediation process.
“AMP has said they don’t want to send people bankrupt – it’s probably still early days but what they seem to be asking for is statements of assets and liabilities for people so they can make a decision on what they’re going to do,” Mr Macdonald said.
“Some of the cases in mediation will come to some settlement on that, but we don’t know what it is. What I think AMP are more likely to do is take a mortgage on [the adviser’s] house and recoup it when they sell.”
He explained that as a result of the write-down of client book values, which had not flowed through to an adjustment of the original loan taken out by some advisers through AMP Bank, the affected advisers could walk away owing AMP money, with no security to pay off their loan.
“The ‘practice start-up offer’ was that you borrowed $250,000 secured by the register AMP gave you, but what’s happened is after some of the people have paid back the $250,000, after six, seven, eight years at AMP they get nothing to show for it, and others will have a debt still outstanding,” Mr Macdonald said.
“The complaints are around why should I walk away with a debt because of AMP’s decision, and why should I walk away with nothing.”
The mediation relates to AMP’s decision to reduce guaranteed value in its BOLR contracts from four times to 2.5 times recurring revenue, and to terminate 250 planners that were no longer profitable as a result of the write-downs.
According to a 2018 AMP Bank annual report, AMP Group Holdings had assumed indemnity as of February 2019 for losses suffered by the bank “in connection with loans provided to an AMP adviser which relate to a change to law, regulation or a change an AMP licensee makes to its arrangements with advisers, or matters identified in the course of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry”.
Outlook uncertain for indebted advisers
One affected adviser speaking to ifa on condition of anonymity said in his experience, AMP had been reluctant to take responsibility for preferential loans given to AMP Financial Planning advisers through AMP Bank.
“The practice start-up offers we had initially, that was a joint product by AMP and AMP Bank – you couldn’t go anywhere else and get what was on offer,” the adviser said.
“But now the bills are due they are saying we’ve got nothing to do with AMP Bank, you did that so it’s your problem with the bank.”
Having failed to reach a suitable settlement with the wealth manager, and still owing a sizeable debt to AMP Bank, the adviser said he was concerned the bank would soon “come knocking” to demand payment, which could mean “putting my house up for sale and kicking my family out on the street”.
The adviser said he had also lodged a complaint with AFCA around the terms of his loan, which Mr Macdonald said had been the case with a number of terminated advisers who had outstanding AMP Bank loans.
“I think most of them are still going through the process [with AFCA], I’m not aware of any that have settled yet,” Mr Macdonald said.
A spokesperson for AFCA confirmed the ombudsman had received “a small number” of complaints relating to appropriate lending by AMP Bank from adviser businesses. Due to confidentiality, the spokesperson was unable to comment on the progress of the complaints.
An AMP spokesperson added that AMP Bank was “working closely with advisers impacted by the changes”.
“Our priority is supporting advisers and addressing their unique needs and circumstances so fair and reasonable outcomes can be reached,” the spokesperson said.
“We recognise this is a challenging period for financial advisers, driven by the significant economic changes and disruption that have occurred across the industry. This includes the removal of grandfathered commissions, new mandatory education standards and higher advice standards.
“AMP continues to engage with advisers, the Adviser Association and the Small Business and Family Enterprise Ombudsman, including fully participating in mediation with advisers to support them through the change.”
AMP are sure they are legally correct i see a lot of talk but legal is legal
AMP execs are ruthless, heartless robots, ruining lives. Don’t be fooled by their feigned support of Advisers. They are not supporting Advisers in the slightest. They are doing everything in their power to write down values and get out of this with as little damage to the bottom line as possible. And while the AMPFPA attempts to work in the interest of the Advisers, they are essentially toothless tigers. Not to mention the FPA and the AFA. Ironically, it’s part of the AMP licence agreement to pay membership to either FPA or AFA – and to AMPFPA. “Compulsory donation” would be a more apt description.
The AMPFPA, FPA and AFA can really only support the litigation process and or the regulator. They can also expose unconscionable conduct like selling D clients 4x revenue to new advisers as outlined below. The accumulation of that evidence will have an impact.
The other consideration is also what happens if the enforcement action would shut down the organisation – then a whole different chorus will start. The regulator could ask the maximum of NAB and CBA but would other licensees survive this level of restitution?
To my fellow AMP advisers. It’s terrible to witness how the FPA have treated you. It’s clear that the FPA have been in the hip pocket of AMP for decades. To quote the FPA when I’ve asked them on so many occasions as to why they continue to get funding from AMP it’s “to help shape the direction of advice in Australia”,
Well AMP has certainly shaped the advice landscape haven’t they now. I’ve constantly asked the FPA do they represent AMP or do they represent my AMP brothers and sisters. I don’t believe you can do both and AMP have shafted AMP planners. Surely AMP advisers or former advisers can’t belong to an industry association that was their accomplice. Send a message to the FPA and resign. Don’t get shafted a second time.
Perhaps as AMP wrote down the value of their “primary security” they should simply be barred from relying on any collateral security. BTW John Edwards what do you mean “like an airline”!!! I have not seen any report indicating cuts in executive pay at QANTAS!!! All large companies are managed to maximise management bonuses. The second most outrageous unregulated conflict of interest after Parliamentary Salaries.
So, lets understand this. AMP sells a book to an adviser. It finances the book, charging the adviser interest. Then having successfully lobbied government to remove trail commissions, an act that is against the Constitution under Section 51, lowers the BOLR value to 2.5 times instead of the promised 4.0 times. So, this is a bait and switch trick.
It is the most disgraceful deceptive behaviour I have ever seen by these institutions, who essentially used these advisers to sell their products with skewed APL’s, itself a questionable act and now seeks to bury these advisers as they are small and cannot fight back.
I would have thought then that the entire loan ought to be revised from outset, interest adjusted in the adviser’s favour and a penalty imposed on AMP for Unconscionable conduct.
By the way, what of those CEO’s that made of like bandits for giving rise to this fiasco. Will they be paying their bonuses back as well?
AMP cannot be regarded as anything but, along with the major banks and industry funds, entities that simply do not care about advisers, let alone consumers.
They are not demonstrative of trust, regardless of their platitudes and marketing and ought be treated with utter contempt by consumers. Advisers should remove money from these entities as long as it is in the clients best interest.
Greed at all level’s is what this appears like. Their needs to be accountability.
For those that say that this is merely market related. That is nonsense given the deception that has occurred at levels of management at these organisations.
If the book value had fallen as a result of economic forces, one can understand or the failure of the adviser to maintain those clients also is worthy of such an outcome. This was not.
Advisers were made promises that they could sell their book at 4 times. If the adviser was to accept a lower valuation on the removal or trails as part of the calculation and is asked to accept this, then AMP must also acknowledge this and adjust the ratio at say 4 times the balance of the book.
To do otherwise is worthy of the contempt that AMP, their board of management deserve. They need to be held to account.
As to trail commissions, this was a contract at law and as such needs to be tested in Court due to the gravity of the issue as it is unconstitutional at law.
Fair comment, but you haven’t addressed an important issue – “Adviser Greed”.
They sold their soul in a market that never warranted 4.0 times recurring. And that came at a price with regards to products they recommended to their clients. Best Interest Duty ……Hmmmm???
Can’t have your cake and eat it too!
I am one of the AMP advisers who will leave after more than 5 years with a residual debt. One of the issues I”m being forced out is I didn’t recommend AMP products. There was never a problem getting them approved provided you showed BID but I suppose they can get you in other ways.
Good to see Terry back
The fact AMP can flex their muscle to get what they want confirms the systemic problem with the big wealth managers. The salaries of all the execs and employees are paid from the fees customers pay. If the BOLR needs to be reduced by 37.5% to reflect market value then isn’t it reasonable to expect that all exec salaries be also reduced by 37.5% ? It is quite bizarre that these executives feel they can build a cone around themselves. In Covid 19 terms, it would be like an airline company laying off all the staff but the execs keep getting paid top dollar because they are execs ?
In view of the fact that the AMPFPA had basically abandoned shafted advisers any comments from Neil and the team are basically redundant. If I was a skeptic I might say that it almost seemed like the AMPFPA had been on the side of AMP. But I am not a skeptic and I am not saying that.
If you are a member of the ampfpa (which changed its name in January), please give me a call as you appear not be getting our communications.
Several years ago AMP allowed many of their established advisers to exercise “partial BOLR”. They were allowed to sell back to AMP all their difficult, unprofitable, or uncontactable “D” clients for 4 times ongoing revenue, while continuing on as an AMP adviser with their good clients. These “D” clients were then parceled up and sold by AMP to unsuspecting new entrants for the same amount, with no historical files and largely out of date contact details. Everyone in the industry knows that 4 times ongoing is well above market rate for financial planning clients. But for these clients, 1 times would have been above market rate. This arrangement is the root cause for many of the current problems.
Who were the primary beneficiaries of this arrangement? Not AMP, they were just the facilitators. It was the established AMP advisers who effectively sold their “D” clients to naive newbies for a grossly inflated price. The same established AMP advisers who were the longest serving and most powerful members of ampfpa.
That is a very interesting point and gives a lot of perspective. I bought a similar book (AXA) some 10 years ago but there were quite a few hidden gems and it turned out well (previous adviser didn’t do anything at all with the book). If the above is true, then this is a fairly strong lapse of duty of care that AMP engaged in. If it really is D clients sold at 4 times rather than the clients of retiring advisers … my word, what a mess.
Truth right here…..
Probably explains why over 50% of the Practice Start Up’s failed within 5 years. Whilst the current situation is getting some traction / publicity the fact that the flawed system was allowed to continue for so long is also a disgrace.
I am quite shocked to read what Anonymous writes about AMP selling D Cients for 4 times to new advisers. This kind of conduct strikes me as not only unconscionable but potentially fraudulent. It is nothing short of utterly disgraceful.
It is in absolute fact I assure you