The mainstream media has done a fantastic job of making financial advisers look like crooks. The royal commission also managed to shift the blame from institutions to advisers. The AMP henchmen tasked with auditing advice practices saw an opportunity here. But more on this later.
The Hayne inquiry costed former AMP chairman Catherine Brenner, chief executive Craig Meller and half of the board their jobs. But it looks like the new leadership team of CEO Francesco De Ferrari and chairman David Murray is in the process of turning their 2400-strong network of advisers into debtors. It’s evil genius at its best. AMP has come up with the final solution to its advice woes. Let me explain.
Advisers who joined the AMP network and went through its Horizons training program were offered the chance to buy orphaned client books at four times revenue. One AMP insider tells me that most of these books have been bought and sold more than a dozen times. He cited instances where AMP was unaware that some of the clients were no longer alive.
The only way for a budding new AMP Horizons graduate to acquire these crappy assets was to accept a loan from AMP. All on the premise that it could be sold back to AMP for four times revenue. Genius.
But the orphaned client books were not enough security for AMP (they probably knew how worthless they really were, let’s face it). The 170-year-old institution needed more collateral. In many cases an adviser was required to use their home as security.
The problem with the BOLR agreement is that it gives the institution complete market making power. AMP owns the client and sets the price. They decide how much an adviser’s business is worth. That’s the rub.
Last week’s announcement by AMP that the new market value of advice business is 2.5 times revenue, not the four times as originally promised, is a brutal step for sure. But it’s not that big of a surprise to AMP advisers, who have been at the mercy of the group’s maddening auditing process for years.
I’ve spoken to advisers who have seen a $5 million business valued at $1.5 million by AMP (once again, the only buyer in the transaction).
I’m told the audit process is in a constant state of flux, with changing scorecards and a little help from Hayne’s recommendations and other legislative changes. Compliance, regulatory reform and the tidal wave of negative press advisers continue to battle are a great ammunition for AMP’s auditors.
AMP advisers tell me that the auditing process has grown from a review of 50 files to as many as 200. Fingers point to incorrect fee disclosure statements, with the adviser explaining that these were the very documents they were told to use by the group. The usual reply is that the rules have changed. Didn’t they get the email?
Manipulating data, changing rules and making up new ones as they go have all been cited by AMP advisers who have been through this heinous process. The group has no shortage of ways to undervalue these businesses.
One adviser I spoke to said the impact of the royal commission has caused major reputational damage to his business. He claims being AMP aligned has reduced his revenue by 70 per cent in the last 12 months. His clients don’t want to be associated with the company.
Another adviser told me that he has contemplated taking his own life four times. He believes AMP’s handiwork will have tragic consequences for those who joined a company they are now blaming themselves for trusting.