AMP Financial Planning (AMPFP) was fearful of a ‘BOLR run’ according to Federal Court documents regarding the firm’s decision to change its BOLR terms.
In the Federal Court in Melbourne this week, Justice Moshinsky ruled AMPFP lost the case on all counts and ruled in favour of the lead applicant Equity Financial Planners and sample member Wealthstone.
The class action was filed in July 2020 on behalf of advisers who had been authorised by AMPFP. The claim related to changes made by the firm to its BOLR policy in August 2019. This had seen AMPFP cut its BOLR terms without notice from 4x recurring revenue to a maximum of 2.5x with immediate effect.
In the ruling, Justice Moshinsky cited evidence that AMPFP feared a ‘BOLR run’ where exiting practices preferred BOLR to practice-to-practice (P2P) transactions 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; the problem 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 letter read.
Justice Moshinsky considered evidence supplied by Damian Byrne who was senior manager, value exchange and proposition, within AMP’s advice business from July 2017 to July 2021. He was considered the custodian of the BOLR policy and the person responsible for queries and changes.
In September 2018, Byrne was tasked with formulating a BOLR strategy in light of the predicted recommendations of the Hayne royal commission.
“Mr Byrne gave evidence in his affidavit, which I accept, that at the forefront of his mind, while formulating the BOLR strategy, was not only the risk of a ‘BOLR run’ (i.e. a large number of BOLR applications being submitted by practices), but also the challenges facing both the financial planning industry and practices given the market sentiment towards AMP at the time and broad distrust in the financial planning industry,” the letter read.
A subsequent letter sent by David Akers, managing director of business partnerships of the Australian wealth management division of AMP Group to AMP Ltd chief executive, Francesco de Ferrari, in March 2019 cited a BOLR run could be caused by changes brought in by the Hayne royal commission. Some 45 practices had already submitted their exit notices to AMPFP since the report’s publication in September 2018, he said.
“These changes will result in significant cash flow 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,” the letter read.
“Propensity modelling indicates that >700 practices may seek to exit within one to three years at an aggregate transaction value of $900 million (including 175 already exiting). Since the Hayne report was published, 45 practices ($70 million value) have submitted their exit notice.
“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.”
Akers also stated in evidence that AMPFP was in a “crisis position” that meant the option of making incremental changes to BOLR rather than ones that took immediate effect was not available.
However, Justice Moshinsky ruled the references “do not establish a BOLR run was underway”, but rather that AMPFP was taking planned actions to mitigate the risk or severity of a possible one.
AMP were also ramping up their internal divisions to look after the clients acquired from their exiting planners, and evidence provided in court showed that they expected to make a profit on managing those clients internally (rather than leave them in the hands of non-employed planners). Even if Damien Byrne had his eye rightfully on mitigating risk, Akers et al then tried to turn it into a profit play. Risk mitigation could have been discussed reasonably with the advisers and the agents association: robbing the planners was not a strategy that could be ‘consulted’ on. Hence the court decision. Now executives have to explain to shareholders how they got this so so wrong, and how many millions of dollars their arrogant mistake will cost them. Its a shame that the CEO hightailed it overseas before the judgement. I wonder if anyone will have the nerve to question David Murray about masterminding this diabolical plan????