Embattled wealth manager AMP is forcing hundreds of its own financial planners out of business, with many at risk of losing their homes as it slashes the amount it will pay them for buying out their businesses.
AMP unveiled its plan last month to slash the number of its aligned advisers by a third, as it aggressively tries to restructure the business.
It wrote to about 190 of its aligned financial planners, telling them their partnership with AMP was being terminated by the end of October.
It is also cutting by almost half the amount that it will pay them to buy back their business.
AMP had an agreement with planners that it would buy and sell at four times the annual earnings of each business but it has now told them, given the changes to the world of financial planning, it will only pay two-and-a-half times the earnings of businesses.
That has devastated some planners who have spoken to the ABC.
“I don’t think there’s words that are strong enough,” one planner said.
“To be sold something on one basis, and then to have that basis completely eroded by a significant amount is absolutely reprehensible, in my opinion.”
The planner bought a book of clients from AMP several years ago but it is now terminating him.
“In effect, it means AMP can buy books back now for significantly less than what they sold it to you,” he said.
The ABC cannot disclose any details about the planner. AMP has a confidentiality clause in its termination letters.
“In the paperwork that’s been put in front of me that I haven’t yet signed, if I don’t paint AMP in a glowing light they can remove all options that are currently available to me and essentially throw me on the street,” he said.
Many planners likely to be left in debt
In the past, AMP encouraged planners to take out loans to buy their businesses.
Many the ABC has spoken to have loans that are bigger than what AMP has said it will now pay for those businesses.
At the end of October, when AMP shuts them down, they will potentially be left with no income and a large loan.
AMP Financial Planners Association CEO Neil Macdonald said he had been inundated with calls from members fearing for their futures.
“People’s homes are definitely on the line. We know that they’ve told us that they’ve got loans maybe several hundred thousand dollars, and the only way they are going to get it cleared is to sell their house,” he said.
“But you’d like to think that AMP will do the right thing and make sure that doesn’t happen.”
Mr Macdonald said that, until recently, AMP was still encouraging planners to take on extra debt to buy more clients and grow their business.
“It’s not something they stopped doing three or four years ago; they were still encouraging people to borrow money, and probably still are encouraging people to borrow money,” he told The Business.
‘Institutional power to walk all over the small guy’
Another financial planner who spoke to the ABC, applied to sell his business back to AMP earlier this year, a process that normally takes 12 to 18 months.
When he applied, AMP was paying four times, but he has been told by his AMP case worker that the wealth manager will not hold to that agreement, and he will be paid about two-and-a-half-times his business’s annual income.
Instead of receiving about $500,000 for selling his business back to AMP, he said he would walk away with a sizeable loan, which he took out to buy the business in the first place.
“They are using institutional power to walk all over the small guy … I don’t have the financial power to win court cases. And it’s scary,” he said.
He is one of the 90 per cent of AMP aligned financial planners who have voted to pursue a class action.
He no longer wanted to be an aligned AMP planner as he watched the company implode in scandal after scandal at the banking royal commission.
“I lost faith in whether AMP could provide what they needed to stay the same trustworthy company they were,” he told The Business.
‘Very worried about their mental health’
The planners argue they are being thrown under the bus by AMP in response to wrongdoing by the company exposed at the financial services royal commission.
“We’re very worried about some of our planners, particularly their mental health,” said Mr Macdonald.
“We are probably speaking to three or four a day, just to refer them to counselling support services.”
He said some of those affected have been planners for a long time and have no other career options.
“Some of them, they’ve been doing this for 30 or 40 years and this has been their life, and suddenly they’ve lost their business,” Mr Macdonald said.
“They’re not sure if they’re going to walk away with a loan. They’re worried about their clients.”
In response to questions on whether AMP will forgive loans, or ensure no planner will be left with a debt, AMP said: “We have a range of support measures available to practices.”
AMP said the changes to its buy-back program reflect “the significant economic changes that have occurred across the industry, including legislative change that will cease grandfathered commissions, and other market disruptions”.
The company is already facing several other class actions as a result of last year’s royal commission, which revealed a raft of scandals, including fees for no service and misleading the regulator, which led to the departure of the chief executive and chair, and the shredding of the company’s share price.
But this planner believes it is all about profit.
“There’s no doubt about it, AMP is in survival mode and I daresay AMP have decided that small, one-man practices like myself do not now fit into their business model,” he lamented.