Commissioner Kenneth Hayne has questioned whether there’s a place for buyer of last resort agreements in an advice and wealth management industry where fee arrangements are renegotiated yearly and are service focused – as he has recommended.
Hayne said that buyer of last resort (BoLR) arrangements not only facilitate, but actively encourage, the treatment of client books as a tradeable asset to be valued as a multiple of annual income earned.
Rather than think about this revenue as annual income, advisers should think about it as fees clients pay for a service, Hayne intimated.
Hayne’s comments pertaining to BoLR are based on his observations from the second round of royal commission hearings in April last year when Anthony “Jack” Regan (pictured), AMP’s then head of financial advice, took the stand for cross examination.
At that time of these hearings, Hayne formed the view that licensees did “nothing” to prevent advisers from having more customers on their books than they could monitor and advise annually, the final royal commission report has revealed. Often, advisers with excess clients will have acquired or inherited those clients from some other adviser which is a feature of the BoLR agreement, he noted.
Hayne specifically pointed to AMP and its associated entities, which have historically used buyer of last resort arrangements. AMP’s associated dealer brands include AMP Financial Planning, Charter Financial Planning, Hillross Financial Services, IPAC Securities and SMSF Advice.
“Buy-back terms” are a feature of our commercial arrangements with advisers and create a framework for practice valuations, an AMP spokesperson said in response to a request for comment on the topic from Professional Planner.
“AMP continues to consider the royal commission recommendations and the implications for our business and our adviser network,” the spokesperson said.
In a broader statement released to the market following the final royal commission report reveal, the company stated: “AMP will work constructively with the government, regulators, advisers, trustees and other bodies to ensure that, as the recommendations move into definitive legislative reform, the outcomes are clear, simple and meet the best interests of customers.”
Buy-back state of mind
There are requests from multiple AMPFP authorised representative practices to exercise their BoLR agreements at the moment, according to a person who claimed knowledge of these requests but preferred not to be named.
Not all BoLR agreements within the group are the same – AMPFP authorised representative practices can only exercise their BoLR agreements within the AMPFP network, but other brands, such as Hillross, can exercise their BoLR agreements to leave the group with clients. It takes between 12 and 18 months for a BoLR to be acted on once its requested by a representative practice, it is understood.
BoLR agreements were a prominent feature in AMP’s proposition to acquire advice businesses when it grew its wealth network quickly in the late 1990s and early oughts. Its BoLR terms have been revised a few times since 2014, most recently in 2017 to be better align with more contemporary regulations and include factors such as record keeping and compliance standards.
In May last year, following the damning royal commission public hearings focused on the advice sector, AMP executives went state to state to confirm with practices that BoLR agreements remained in place.
Some experts have described BoLR as the “glue” holding AMP’s sprawling advice network together; the BoLR agreements are underpinned by contracts with preclusive exit agreements. Separately, the agreements have been described as a significant contingent liability for the company – most notably in a Morgan Stanley analyst report published in May last year – in the event a significant number of Hillross and AMPFP practices decide to leave the licensee.
Hayne’s view that client fees shouldn’t be seen as a tradable asset by advisers and wealth firms appears to undermine the BoLR-style of agreement. Hayne’s plan to make service agreements forward looking and service oriented will test these kinds of deals now and following the implementations of his recommendations.