Australia's AMP is reinventing its wealth management division with a strategy that includes a significant reduction in what it will pay retiring advisers, or those who wish to exit the industry, to buy back their client books under its buyer of last resort (BOLR) program.
The new scheme will see AMP pay advisers a multiple of 2.5 times the earnings from their clients to buy their businesses, down from 4 times earnings under the current scheme.
"We are all running businesses. As the CEO of a public company I would find it difficult to explain to shareholders how to justify buying something that is worth 2.5 times at four times," AMP chief executive Francesco De Ferrari said.
It's a devastating blow for the industry"
"Clearly, there are agreements in place and there are also clauses for adjustment including changes in the environment and operating conditions.
AMP directed compliance staff several months ago to begin looking into historic BOLR agreements, specifically targeting those advisers with contracts entitling them to a multiple of 4x recurring revenue.
According to specialised news outlet Financial Standard, AMP has been investigating these firms with the aim of uncovering past compliance indiscretions. Sources said some advisers have had their buy-back valuations slashed as a result and further claim AMP is using 2019 compliance standards to reassess historic audits in order to do so.
AMP Financial Planners Association chief executive Neil Macdonald said the group would vigorously contest these changes to the terms of the BOLR.
"AMP was contractually obliged to consult with the group over changes to the terms, and also to give its members 13 months notice of any changes that would have a detrimental effect on them," he said. "AMP has done neither."
"Advisers had to pay four times recurring revenue to buy into the right to service an AMP client book. That was the price set by AMP. It was never a market value."
Macdonald said advisers would never have paid 4x when buying without AMP's promise to pay the same when the adviser retired.
Further, many of AMP's advisers have taken on significant debt - largely through AMP Bank - in order to buy or expand their books. Macdonald said that, in many cases, advisers put up their family homes as security in doing so.
Given the existing stress on business revenue as a result of increased back-office obligations following the royal commission and changes to revenue streams, Macdonald said repaying the loans would be extremely difficult for some advisers and could signal bankruptcy.
"We are concerned about the potentially devastating flow-on effect of the financial loss in terms of the mental health of advisers, their families, and their staff, as well as the impact on their clients," he said.
Many aligned AMP advisers feel they are being punished despite years of loyal service to the wealth manager.
Philip Kewin, chief executive of the Association of Financial Advisers, said advisers had contractual arrangements in place with AMP and it now appears the company would not honour them.
"It's a devastating blow for the industry," he said.
AMP had 2567 core licensed advisers as of December 31, when it last reported numbers. The advisers included 223 in AMP Advice, 1334 in AMP Financial Planning, 687 as part of Charter Financial Planning and 313 at Hillross.
De Ferrari implied the business could reduce the number of advisers to 1600 at the end of the transformation based on his international experience, but said it was not the number that counted..