AMP chief executive, Francesco De Ferrari has declared that the company’s buyer of last resort (BOLR) arrangements had become financially unsustainable and that AMP was therefore within its moral and legal rights to make changes.
Under tough questioning during a hearing of the House of Representatives Standing Committee on Economics, De Ferrari insisted that AMP was on solid legal ground because it had entered into the necessary consultative processes with planning practices before making its changes to the BOLR arrangements.
He said that the arrangements were simply unsustainable at four times revenue when the reality in the market was slightly more than two times.
Further, he said the BOLR arrangements had to be viewed for exactly what they were for the advice practices – an avenue of last resort.
“We have had to adapt the commercial terms of our BOLR for one of our licensees because the terms were simply outside of what was commercially sustainable and not reflective of market conditions,” the AMP chief executive said.
“In the AMPFP licensee we had a multiple of four times revenues and that is significantly higher than the current market practice and significantly higher than the multiples we have in two other core licensees – Charter Hall and Hillross,” De Ferrari said.
Reinforcing that BOLR arrangements were a last resort, he said the standard process that a practice would normally go through would be succession from within the practice to ensure continuity of service.
“The second normal practice is that the practice owner would be selling to another practice.”
“The buyer of last resort is precisely that – it is a resort offered to help our advice practices when they cannot pursue any of these other avenues,” De Ferrari said.
Bluntly asked by the committee chair, Tim Wilson, whether AMP had broken the contracts it had with its advice practices, De Ferrari said AMP was “confident that we have fulfilled our consultation obligations and that it was within our legal right to adapt our commercial arrangements”.
“I fundamentally believe it was legally right,” he said.
Asked by Wilson whether it was morally right, De Ferrari said: “We’ve continually asked ourselves whether we have the right to do so and should we do so. I believe that paying four times revenue for a practice where we then on average sell the books onto other practices for a little over two times revenue was really not commercially sustainable”.
“I appreciate that this was a tough choice and that’s why we are working together with the aligned practices to try to accompany them in this process,” he said.
AMP’s actions on the BOLR contracts is the subject of a class action mounted by affected advisers.
