Court documents reveal AMP likely aware of mental health impact on advisers

Justice Mark Moshinsky ruled in favour of the class action, finding the changes made by AMP with immediate effect were not authorised under the legislative, economic or product (LEP) provisions and “were ineffective”.

The claim was brought by advisers who argued the wealth giant failed to give them adequate notice before writing down their client book values under BOLR contracts.

Court documents issued on Wednesday have now revealed AMP was aware that severe consequences would follow its BOLR changes, among them a material erosion of “practice valuations”, and a “high impact” on trust in AMP and its relationship with adviser associations and practices.

Namely, citing a memorandum sent by David Akers, managing director of business partnerships of the Australian wealth management division of AMP Group, to the then chief executive officer of AMP Francesco De Ferrari in March 2019, Justice Moshinsky acknowledged that Mr Akers alerted to a range of “risks and consequences”.

At the time, the memorandum was discussing changes to valuation for grandfathered commissions and not the wider changes AMP would eventually go on to implement.

In the memorandum, Mr Akers said: “The changes will cause many practices to fail and may impact on the health and wellbeing of practice principals”.

He also added that: “AMP field staff will receive wellbeing and sensitivity training”.

Mr Akers also warned of the “risk of negative media about AMP’s treatment of advisers”, and the risk that “a breakdown in trust leads” could “accelerate platform outflows”.

Justice Moshinsky said that in mid-March 2019, Mr Akers formed the view, after consulting with Mr De Ferrari and other members of the AMP’s advice leadership team, that it was preferable not to proceed with the proposed changes to the BOLR policy.

However, instead of dropping the changes entirely, from mid-March to 25 July 2019, AMPFP engaged in developing a “more wide-ranging” set of changes — changes that went beyond grandfathered commission revenue and were considered in the context of a broader strategic review of AMP’s advice business.

Following “many” internal meetings, AMPFP eventually launched a 12-day consultation with ampfpa — the association representing practices in the AMPFP network — on the proposed changes, before announcing its new terms widely on 6 August.

Fear of ‘BOLR-run’ instigated change

The court documents also detail AMP’s fears that the royal commission fallout could trigger a “BOLR run”.

Namely, the Justice acknowledged that one of the reasons behind the short consultation period on the changes was the fear that AMPFP was facing this large exodus of practices under the BOLR rules.

Justice Moshinsky explained that Damian Byrne, a senior manager within AMP’s advice business from July 2017 to July 2021 and the lead on the BOLR changes, was concerned that the wealth manager was looking at a large number of BOLR applications being submitted by practices.

This, the Justice noted, was at the “forefront of his mind” while formulating the BOLR strategy.

AMPFP argued that the industry changes — imminent cessation of grandfathered commission revenue, impending educational requirements, increasing compliance requirements, and declining profitability — were driving exits in the industry, including in the AMPFP network.

“The evidence shows that exiting practices were increasingly preferring BOLR to P2P [practice to practice] transactions, which the court should infer was due to the increasing difference between the BOLR valuation and the price achievable in the P2P market; this was the ‘BOLR run’ that AMPFP was critically concerned about — a significant increase in the number of practices leaving the AMPFP network via a BOLR transaction in a short period of time,” Justice Moshinsky said.

The problem, he noted, was a compounding one — as more practices sold back their register rights to AMPFP via BOLR, it became more likely that AMPFP would not have the capacity to service the registers internally and more likely that registers would need either to be sold at a substantial loss or the fees otherwise switched off.

“As a result, an increasing amount of capital had to be available to fund BOLR transactions and increasing write-offs were being incurred, which were not sustainable.”

The earlier mentioned memorandum by Mr Akers touched on these fears too. In it, he stated that “over the next few years”, advisers “will experience an unprecedented level of economic disruption as a result of industry change”.

“These changes will result in significant cashflow and capital loss for most self-employed practices. A large number will be unprofitable or much less profitable or facing debt serviceability issues. Many will struggle to restore their profit margins, while also adjusting to new pressures on service, compliance and educational standards,” Mr Akers wrote.

“Propensity modelling indicates that >700 practices may seek to exit within 1–3 years at an aggregate transaction value of $900 million (incl. 175 already exiting). Since the Hayne Report was published, 45 practices ($70 million value) have submitted their exit notice.”

Mr Akers added that, with a view to mitigate against the capital risk of an uncontrolled “BOLR run” and ensure a viable future advice network, “the advice business is developing a consolidated program of work”.

Justice Moshinsky, however, found that rather than prove that a “BOLR run” was underway, what the evidence suggested is that AMPFP was undertaking “planned actions to mitigate the risk or severity of a BOLR run”.

AMP has, over the years, argued that it acted within the law.

Back in 2020, a spokesperson for AMP told ifa the group was confident changes made to the BOLR contracts had followed the letter of the law as well as being “in the long-term interests of our clients and advisers”.

“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,” the spokesperson said.

“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 added. “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.”