AMP shares plummet as court rules against validity of BOLR valuation changes

The court ruling creates significant uncertainty over the potential financial impact for Australia’s oldest wealth manager.

AMP shares fell to as little as $1.05 each on Wednesday, their sharpest fall since February, before recovering slightly to close 6.14 per cent lower at $1.07. Picture: Britta Campion

Shares in AMP plummeted after a federal court judge ruled in favour of financial planners that sued Australia’s oldest wealth manager over the validity of valuation changes under its Buyer of Last Resort policy in 2019.

In a statement, AMP acknowledged the ruling, noting its “complexity”, and said it would review it “in detail” to determine its full effect.

A group of advisers filed a class action against AMP Financial Planning Pty Ltd in 2020 over its decision the previous year to slash what it would pay them for their businesses from 4 times revenues to 2.5 times without consulting them, as contractually required by the BOLR policy.

The group argued AMP’s plans to cut the valuation was “ineffective” because AMP did not comply with contractual terms under its BOLR policy, including giving 13 months notice.

AMP on the other hand considered the valuation haircut was effective “immediately” after it announced it in August 2019 as part of plans to reinvent its wealth management division and cut costs. It argued the change was permitted under an exception clause that allowed it if “legislation, economic or product changes” rendered the BOLR policy “inappropriate”.

AMP argued that declining trust in the sector following a string of scandals that were aired at the financial services royal commission in 2018, combined with regulatory changes and a mass exodus of financial planners from the industry, injected significant turbulence that increased costs and reduced revenues for the industry at the time.

The Federal Court judgment on Wednesday ruled the valuation change was “not authorised” under the exception, and that “the requirement to consult … is a precondition to the effectiveness of the change”.

Simon Mawhinney, managing director and chief investment officer of Allan Gray, AMP’s largest shareholder, said the ruling was “not the outcome that shareholders wanted”, adding it was difficult to assess the full impact of the decision at this stage.

Analysts at Bloomberg Intelligence estimated AMP could face a hit of $115,000 to $800,000.

S&P Global Ratings said AMP had “substantial capacity to absorb some financial heat from an adverse class action ruling”.

AMP shares fell to as little as $1.05 each on Wednesday, their sharpest fall since February, before recovering slightly to close 6.14 per cent lower at $1.07.

“Subject to any appeal, a process will be required to determine the impact of the decision on other group members,” AMP said.

In the ruling, Justice Mark ­Moshinsky said AMP had “failed to consult as required by … the master terms and the LEP provision” of the BOLR policy.

“It further follows that the ­ August 8, 2019, changes (with immediate effect) were ineffective on this basis,” he said.

“I do not accept AMPFP’s submission that the reduction in the BOLR multiple ‘reflected the reduction in value of financial advice businesses in the external market (and thereby aligned the BOLR policy with the external market)’,” he said.

He granted Equity Financial Planners, the main plaintiff which brought the proceedings on its behalf and on behalf of hundreds of other disgruntled advisory firms, damages of $813,560 and a separate “sample group member”, Wealthstone, damages of $115,533.

Neil Macdonald, chief executive of The Advisers Association, which represents financial planning practices in the AMP network, said they were “pleased for our AMP members”.

Originally published as AMP shares plummet as court rules against validity of BOLR valuation changes