‘Evolving’ AMP ready for fight

AMP will “vigorously defend” any legal action as it forges ahead with drastic plans to make its business model more sustainable

MP’s Australian wealth management chief Alex Wade. Picture: Hollie Adams

AMP’s Australian wealth management chief Alex Wade says the group will “vigorously defend” any legal action brought by financial advisers, as it forges ahead with drastic plans to make its business model more sustainable.

His comments come as advisers start to be to told by AMP they are no longer required, and the AMP Financial Planners Association (Ampfpa) prepares to convene a meeting this month for members to vote on particular courses of legal action.

AMP’s new strategy has put it at loggerheads with some of its advisers and the Ampfpa, which is helping members pursue legal recourse.

AMP’s overhaul of its scandal-plagued advice unit caused a stir among its 2400 adviser network last week when it announced measures to boost productivity and markedly cut the amount it pays to acquire practices as a buyer of last resort.

Mr Wade said while the decision was difficult, AMP had to evolve and change and shareholders had “resoundingly endorsed” the new strategy.

“We understand this is very tough on a number of people and we are trying to support them,” he said in an interview, noting the changes were “within the bound” of contract terms.

“The reality is that we are going through an industry reset, not just an AMP reset.”

But the strategy overhaul is expected to see a reduction of up to a third of AMP’s network, some of which have loans with AMP Bank to pay for their planning practice.

The strategy includes lowering the rate AMP will pay for planning practices as the “buyer of last resort” (BOLR), from four times recurring revenue to 2.5 times and extending the period of notice required to participate to 18 months. The latter provision comes into effect in 13 months.

There are key points of contention between the company and the Ampfpa, including whether there was enough consultation on the strategy and BOLR changes and whether a 13-month notice period for all changes applies.

“Our point is there is no grey area … We believe we’ve consulted,” Mr Wade said. He added that AMP initially consulted advisers in February then provided fuller details of the plans in July.

Mr Wade said case-by-case meetings were being held with impacted AMP practices to sort out a transition, including possible mergers between practices.

But Ampfpa chief Neil Macdonald argues AMP’s consultation was scant, and those that had applied for the BOLR scheme, but not received an exit date before August 8, would be bound by the new arrangements. “They could have had a much better outcome if they did genuinely consult,” he said.

The last change to the BOLR program came into effect in 2017, but consultation started in 2014 with advisers given 13 months’ notice of the changes.

Fresh analysis for investors by governance firm Ownership Matters, obtained by The Australian, has inflamed the debate.

The report questioned AMP’s disclosures of BOLR liabilities and provided details on a 2017 contractual arrangement.

That BOLR contract specifies 13 months’ notice is required for a valuation or material “adverse financial or other significant effect on a practice”.

It goes on to say, though, that subject to that AMP can make other changes “following consultation”, and can make “any change” should legislation, economic or product changes render the policy inappropriate, but only after consultation.

“In 2018 AMP had disclosed the value of BOLR requests received as at year-end was $163 million, up from $90m as at 30 June 2018, based on the values submitted by the advisers seeking to exercise their BOLR rights,” Ownership Matters said.

“No similar BOLR disclosure was provided in the first-half 2019 accounts although AMP did recognise the $93m provision for cases where ‘a notice of intention to invoke the buyback arrangement has been received as at 30 June 2019 and AMP has concluded that the purchase price of the register exceeds the value of the client register to AMP’.”

Ownership Matters also cited AMP chief executive Fran­cesco De Ferrari last week telling the ABC the value of BOLR requests received was “a couple of hundred million”. AMP’s strategy presentation included estimated outlay of $550m over the next 18-24 months for retention and support, and acquisitions of adviser ­registers.