Planners want pre-RC BOLR valuations

The AMP Financial Planning Association (AMPFPA) is being pressured by members to obtain a definitive answer from AMP Limited about how it will treat buyer of last resort (BOLR) contracts in the knowledge that grandfathering will end in 2021.

The degree of concern amongst AMP planners on the future of BOLR arrangements and the consequence impact on practice valuations has been laid bare by the discussions on the AMPFPA blog in the wake of the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Senior planners with substantial AMP-aligned businesses have expressed concern at the future valuation of their businesses and have canvassed AMP Limited being pressed to buy grandfathered accounts under BOLR arrangements as the pre-Royal Commission valuations.

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The concern being expressed by AMP planners about the value of their BOLR arrangements is also reflected in a survey conduct by Money Management last week which revealed slightly under half of respondents believed the 2021 end-date for grandfathering would erode their BOR positions.

This was despite the fact, that nearly half of all respondents to the survey revealing that grandfathered commissions only represented 10 per cent or less of their turnover, with a further 13.5 per cent suggesting it represented up to 20 per cent of their business.

However just over 16 per cent or more of respondents said it represented 50 per cent or more of their turnover.

Analysis provided by specialist research house Dexx&r has also pointed to the BOLR impact from the removal of grandfathering, noting the obligations incumbent on firms which had entered into such agreements with planners.

At the same time, financial planning business brokerage, Radar Results has claimed that valuations have declined by 33 per cent where grandfathered commissions are concerned.

It said that recent sale transactions of grandfathered trail commission clients had traded between 1.5 times and two times the annual trail amount, but in the wake of the Royal Commission had fallen to between 1.0 times and 1.5 times trails, giving buyers approximately 22 months of income.

 

 




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Whilst I am not an AMP Financial planner, I sympathise with them and fully support their entitlements. The Royal Commission has been a complete farce and has demonised financial planners and homogenised their worth. The Royal Commission deliberately overlooked the majority of advisers who do good for the community and the perpetual attacks on their income and their value is obscene. I know what we are worth. I have been a financial planner for 38 years and hold a Masters degree in Financial Planning. We are an industry that will fall into decline if our incentive and our motivation continues to be eroded by self interested parties in the political spectrum.

To suggest the Royal Commission was a farce is surely going too far. As a 38 year practitioner surely you have come across plenty of examples of poor and illogical advice. And one wouldn't need to look further than our big four banks to see how they have completely tarnished the concept of financial planning. If there is anyone to blame for trashing the reputation of financial planners it is them with their stupid business model And whose senior executives indoctrinated their middle management to harangue their financial planners into a frenzy of just selling the product.

Don't blame the RC. The financial planning role was trashed the minute the banks realised the potential of a vertically integrated model.

Trouser the last of your gravy, men, for the carousel is grinding still. In seeking an answer, perhaps ask the shareholders if buying back terminally ill income streams at 4x value qualifies as conscientious board representation.

Tell 'em they are DREAMING!

As per usual, the full impact of removing grand fathered commissions will reduce the value of most business to no more than $0.35c in $. The implications are real because there will be a plethora of advisers now wanting to leave the industry. My guess is up to 70.0%. With many businesses on the market, clearly it will be a buyers market.
The one major stumbling block in all of this is, unless a buyer is cashed up to take advantage of a heavily discounted value, who else will lend to other advisers that are not cashed up ?
As for BOLR's well the AMPFPA put the parent company in a bind when the AMP about 3-4 years ago when the they sought to reduce the BOLR multiple down to 2 from 4 on recurring revenue.
With the threat of a mass exodus of advisers, the AMP buckled under pressure and acquiesced to maintain the status quo.
I think it's fanciful of AMP advisers associated with AMPFPA to think that AMP given the issues raised in the RC and also protect shareholder value will buckle again to their expectations and honour the original BOLR arrangements.
It's a different game now and the regulators/government have used a jack hammer to crack a walnut and instead of punishing the malfeasance to which AMP and others have been guilty of perpetrating of the public, the whole industry is now going to pay a heavy price, as a result.

Unintended Consequence? I could not think of a better method than that developed by the RC (in banning grandfathered) to transfer all those affected clients from the Adviser Practice back to AMP at nil cost to AMP. AMP will then get relief to consolidate all these policies into something streamlined and simply run Inter Fund advice and charge all members. Same result just all the policies now with AMP at no cost. What a bloody farce.

I propose it be legislated that product providers purchase the trail back from advisers at the pre RC rate. It is a way to fine them.
The providers will be out of pocket.
Trails will not be paid.
The client will win.
The adviser can retire debt
If not, the providers will not have any monetary impact and will continue to receive the same income, while the advisers the providers "advised" to buy a book will be hit hard.

MLC paying retention $$ to bigger practices according to the Australian today, not sure how advisers disclose these or manage the conflict or if they are even legal anymore?

I don't feel sorry for these Advisers. FOFA came in back in 2013 and while inbuilt trails were grandfathered it was never the intention that all of these clients be left in the older products. They've had 6 years to shift those people into more modern products or if the product is still the most appropriate for them they could have rebated their commission and charged an Adviser Service Fee instead. There's one reason that this hasn't happened, grandfathered commissions do not require an FDS to be sent to the client, if they transitioned these clients to adviser service fee arrangements then they would have to issue FDS's as well, which creates an administrative burden and a cost. They've still got 2 years to fix the issue and now they don't have to worry about FDS's because we're all being shifted to annual opt in.

I'm not sure FDSs won't still be required when renewing an Ongoing Service Agreement (OSA) annually. However, it does beg the question of whether there is any point in still using an OSA? Will it be just as easy to do annual invoicing, in which case neither Opt-In nor FDS would be required?

I haven't seen any commentary or analysis on this yet. Money Management?

Hi Gil, what you've described is exactly what's going to happen. No more OSA's, the client sounds off on the fee for the services you're going to provide for a period of no more than 12 months. You need to send this signed document to the product/platform you are using otherwise they won't pay you. FDS and opt in are not required now if you operating on 12 month OSA's

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