Product bias in BOLR agreements remain

Institutions may claim that product biases in buyer of last resort (BOLR) agreements have been removed, but grandfathering arrangements have meant that, up to five years later, the incentives remain for some financial planning practices.

A number of large institutions, including AMP and MLC, moved nearly five years ago to remove biases from their BOLR offerings to financial planning practices, but grandfathering arrangements for some mean the old BOLR arrangements will remain a factor even after the implementation of the Future of Financial Advice (FOFA) reforms.

AMP changed its BOLR policy in 2007, increasing the BOLR multiples for non-AMP retail products in line with AMP retail products. AMP director of financial planning, advice and services Steve Helmich said AMP did not currently have different valuation methodologies depending on the volume of in-house product written, but rather all practices with a BOLR agreement would receive four times recurring revenue. 

MLC changed its policy in 2006 so that the value of all new BOLR contracts written after 1 October, 2006, would not be determined by a set formula that favoured in-house products. However, any previous agreements remained in place due to grandfathering provisions. A case in point is NAB-owned Apogee Financial Planning, whose BOLR with a number of its authorised representatives revealed that the old arrangements were still in place long after 2006.

According to the financial services guide (FSG) of Beacon Wealth, an Apogee authorised representative, the BOLR agreement was such that the value of the practice was based on a multiple of ongoing revenue and “will be higher if a larger proportion of revenue comes from clients who hold products offered by the MLC group”. The FSG was dated January 2009.

MLC’s general manager of advice solutions, Greg Miller, said that in 2006 it was decided that changing all existing arrangements would be too disruptive due to its impact on business valuations, as BOLR was an underlying component of how advisers valued their businesses and it linked to how they drew up equity share agreements with other shareholders as well as lending and buying arrangements with the banks. Miller added that advisers were given the option to opt out of the old BOLR agreements.

Soft dollar benefits do not fall under the FOFA reforms, but Helmich — who sits on the expert advisory panel — said it is not unlikely that they could be discussed should concerns be raised.

Other BOLR agreements reveal that financial incentives for placing clients’ money in financial products remain, whether in-house or not. The FSG for The Ebony Rose Group, an authorised representative of AXA Financial Planning (dated May 2010), stated that its BOLR agreement with AXA was such that “the value of the sale is based on a multiple of the ongoing fees and/or commission generated from a financial product”.