Counsel representing AMP financial advisers has told the Federal Court that AMP used changes to its own business structure in light of the Hayne Royal Commission to unfairly change the Buyer of Last Resort (BOLR) policy to protect itself in the face of an impending exodus of advice practices.
Corrs Chambers Westgarth is representing AMP financial planners in a class action against AMP being heard in the Federal Court in Melbourne.
AMP announced in 2019 under then-CEO Francesco De Ferrari it would cut the buy-out for client books from four times recurring revenue to 2.5 times. The court heard that AMP had noted this change in public results announcements in February and August.
The issue was raised during the Financial Service Royal Commission by Commissioner Kenneth Hayne who questioned where there was a place for BOLR agreements because it unfairly commoditised client books as a tradeable asset.
The court heard that communication from AMP’s senior executives that they believed its “re-shaping of the network”, as well as the impending attrition of advisers in the industry, would trigger a “BOLR run”.
The court heard that AMP ultimately was worried about the loss of high-quality practices as well as having to pay a premium price for assets with diminishing value, and that AMP Financial Planning’s senior executives believed the Royal Commission report could be used a catalyst to change the BOLR program.
“The delivery of the Royal Commission report in February 2019 creates a burning platform to act decisively,” the AMP communication stated. “If we do not act, we are likely to see an acceleration of BOLR exits from early 2019 at a price point that maximises AMP’s capital exposure.”
The counsel representing AMP advisers said: “In an environment where it’s recognised that a change to the valuation methodology requires 13 months’ notice, the authors of this note – the senior executives within AMPFP – recognise the Royal Commission report can be used to create a burning platform to make these changes”.
The counsel added the submission reveals changes were not made because of any view that the BOLR policy was inappropriate.
“There was a change in business strategy that no longer made it desirable to have the same number of practices doing the same things and it was no longer desirable to pay those practices at a premium to market.”
The case will continue over the next four weeks.
