Speaking to ifa, the head of policy at the Financial Advice Association Australia (FAAA), Phil Anderson, said the banning of grandfathered commissions and AMP’s changes to the buyer of last resort (BOLR) scheme have had “dire consequences” for countless advisers. While the first saw the benefit of any conflicted remuneration payable under a contract passed on to the client, and the second considerably diminished the value of advice practices, together these changes significantly impacted the retirement income of many advisers.
“I had a number of conversations with people who did it really tough at that time. Many of them have ultimately left. But their retirements will be seriously impacted by the combination of those two things,” Mr Anderson explained.
Last week, the Federal Court of Australia found in favour of advisers in the class action filed against AMP’s subsidiary, AMP Financial Planning (AMPFP), in 2020, in relation to the wealth giant’s controversial decision to change its BOLR scheme.
Justice Mark Moshinsky ruled in favour of the class action, finding the changes made by AMP with immediate effect were not authorised under the legislative, economic or product (LEP) provisions and “were ineffective”.
The claim was brought by advisers who argued the wealth giant failed to give them adequate notice before writing down their client book values under BOLR contracts.
Commenting on the culmination of this several-year-long saga, Mr Anderson said it should bring some relief to those impacted.
But while a portion of lost funds may be recovered, he stressed that the emotional toll these changes had on advisers should not be understated.
“Some put themselves into bankruptcy. Some had substantial mental health challenges and there are a lot of people that had to do what they could to help their colleagues through this process.”
The damage, he reiterated, was “substantial”.
“I’m pleased that this decision will help to remedy some of the consequences that many have experienced. We hope that this can be finalised rapidly and that that works, I guess, to address what has happened in the past but also to facilitate the advice process in moving forward.”
Also commenting on the outcome, the executive director of the Association of Independently Owned Financial Professionals (AIOFP), Peter Johnston, said the ruling is “a great outcome” for the AMP advisers and the adviser community in general.
“These advisers deserve Australia Day recognition for standing up to a nasty bully who thought they could treat them with total disdain and get away with it,” Mr Johnston said.
“It’s about time these institutions acknowledge that the advisers bring their sourced client to the institution and the client owns the client, not the institution,” he opined.
“In typical institutional evasive fashion, the original people in AMP who made these decisions are no longer there, nobody gets held to account and the AMP shareholders pay the price.”
Court documents issued last Wednesday revealed AMP was aware that severe consequences would follow its BOLR changes, among them a material erosion of “practice valuations” and a “high impact” on trust in AMP and its relationship with adviser associations and practices.
Namely, citing a memorandum sent by David Akers, managing director of business partnerships of the Australian wealth management division of AMP Group, to the then chief executive officer of AMP Francesco De Ferrari in March 2019, Justice Moshinsky acknowledged that Mr Akers alerted to a range of “risks and consequences”.
At the time, the memorandum was discussing changes to valuation for grandfathered commissions and not the wider changes AMP would eventually go on to implement.
In the memorandum, Mr Akers said: “The changes will cause many practices to fail and may impact on the health and wellbeing of practice principals”.
While AMP’s advice leadership team elected not to proceed with the proposed changes to the BOLR policy at the time, a few months later, the changes were expanded, moving beyond grandfathered commission revenue to encompass a broader strategic review of AMP’s advice business.
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Not only did they turn off grandfathered commissions 9 months early. they would have continued to collect the money before eventually having them turned off, not passing it to me. I still have loans I am paying monthly for the grandfather clients I bought from AMP and no one has ever explained to me why this is OK?
De Ferrari has a case to answer. Hopefully the judicial system will judge and action accordingly.