AMP hit with class action by financial planners

Embattled wealth manager AMP will defend a class action by financial advisers over changes to its buyer of last resort scheme.

AMP CEO Francesco De Ferrari has accused litigation funders of driving up the cost of doing business in Australia. Picture: Britta Campion

AMP says it will defend a class-action lawsuit brought against it by its own financial advisers over its controversial decision to slash the amount it would pay them for their businesses.

The embattled wealth manager on Wednesday told the market it was confident in the actions it took in 2019 to alter its buyer of last resort policy, which reduced the amount it would pay its advisers for their businesses from four times recurring revenue to 2.5 times.

The changes to the policy were “in the long-term interests of our clients and advisers”, an AMP spokesperson said.

“The financial advice industry has transformed dramatically in the past few years, including the removal of grandfathered commissions, new mandatory education standards and higher advice standards. AMP has made difficult but necessary decisions to ensure we adapt to the new environment and continue to have a strong, viable advice business for clients,” the spokesperson said.

“We recognise the changes are challenging for many in our adviser network, and we’re providing support to our advisers to help them manage the transition, including those who support the class action.”

AMP at its half-year result in August last year unveiled plans to reinvent its wealth management division by culling its workforce and amending its buyer of last resort policy.

The company then informed more than 200 of its aligned financial planners that its partnership with them would be terminated within weeks.

Neil Macdonald, chief executive of The Advisers Association, which represents AMP advisers, said many members had bought businesses from AMP at four times recurring revenue on the promise that the wealth giant would buy them back on the same multiple when they exited.

“These are businesses that were valued by AMP Financial Planning for lending purposes at four times recurring revenue and in most cases were funded by AMP Bank loans or via another tripartite banking arrangement, again at four times recurring revenue,” Mr Macdonald said.

“In many cases advisers had to put up their family homes as security and are now at risk of losing them. Many of our members stated they had little choice but to join the class action.“

The association had tried to negotiate with AMP a fair and reasonable outcome for its members, he said, but without success.

“(A fair and reasonable outcome) is obviously imperative for those who are exiting, but it is just as important to those who are staying, so that they can continue to provide Australians with affordable access to financial advice,” he said.

AMP’s advisers argue that the buyer of last resort policy clearly states the wealth manager needs to give 13 months notice before making any changes.

But AMP’s argument is understood to centre around a clause in its agreement that says it has the right to make any change to the policy if legislation or economic or product changes render it inappropriate.

The lawsuit, filed in the Federal Court in Melbourne by law firm Corrs Chambers Westgarth on Tuesday, comes after Labor senator Deborah O‘Neill last month called for an “immediate inquiry” into AMP’s treatment of its financial planners.

“This decision has drastically devalued the businesses of many financial advisers. This was also applied retrospectively to many planners who had purchased client books in good faith with this guarantee,” she wrote in a letter calling for the inquiry.

The company’s move to apply legislative changes to grandfathered commission payments in January 2020, 12 months ahead of the required date, further devalued the adviser businesses, she said.

Mr Macdonald said some advisers had been forced to sell their homes in a bid to stay afloat, while others had tried to commit suicide.