BOLR: not cut and dried
Following the announcement by AMP of unilateral changes to the Buyer of Last Resort (BOLR) policy, some AMP Advisers are now facing financial devastation.
After a recent meeting with a client (an AMP Adviser who exercised their BOLR option rights with AMP before the announced changes) I realised that many advisers may not be aware that the situation they face is not as straightforward as AMP may like them to believe. There are more legal issues, and potentially more “weapons”, at the disposal of AMP Advisers, than they may realise.
As to the justifications AMP have provided for the changes to the BOLR policy, personally, I don’t find them at all compelling, but we can leave these justifications to one side for the purposes of this discussion.
Advisers shouldn’t just accept the position AMP has constructed as a fait accompli. Don’t take at face value the assertions of AMP about your rights and options. It is in AMP’s interests, and AMP’s alone, that you accept changes by AMP to the BOLR policy without question.
A brutal approach needs an informed response
The announced changes by AMP regarding BOLR have been brutal in their potential impact upon some Advisers. It is highly likely that Advisers relied upon the security of the ‘4X’ BOLR put option when they purchased their businesses or client-books, in many cases borrowing amounts based on the 4X value. The stark reality now, is that AMP’s unilateral revisions to the BOLR terms means Advisers may have negative equity in their businesses against their debt. Their position might be further diminished by the effect of ‘lookback’ audits, as AMP accelerates years’ worth of ‘housekeeping’ in the aftermath of the Hayne Royal Commission.
Contrary to promises of ‘working together’ and ‘support’, the reality of the process appears that it will be very different. AMP Advisers need a properly informed understanding of this complicated situation so they can assess the position, their options and respond. This needs to take into account not just broader legal issues, but also the specific circumstances and story of each Adviser, as this can directly affect the application of the principles discussed below.
The contract and BOLR
The BOLR issue arises because of what appears to be a unilateral change by AMP to the terms of contract between AMP and AMP Advisers. It is common for contractual arrangements between AFS Licensees and large authorised representative adviser groups to be constituted by a suite of interrelated contracts and ancillary documents, including policies. Assuming this is the case here, the relationship between AMP and Advisers is not straightforward. Rather than being neatly laid out in a single contractual document, the contractual relationship may be constituted by a number of interconnected agreements and deeds, with key aspects left to AMP policies, such as the BOLR policy, which apparently may be changed from time to time.
It is the purported changes by AMP to the BOLR policy on 8 August 2019 that are having the greatest impact. Most of the focus has been on the decrease in the BOLR multiple from 4X to 2.5X. But media reports suggest that the multiple on grandfathered commission is being reduced to almost zero months in advance of the regulatory changes behind it. Further, we expect that these changes may be accompanied by heightened attention to seemingly innocuous compliance administration issues which may have a direct impact on the valuation.
The speed and vigour of AMP in making these changes, coupled with the complex framework, may cause Advisers to view the issues, and their legal rights and options, narrowly or as unnecessarily limited. This is not the case.
Advisers legal rights and options
While AMP may want to characterise the issues as straightforward (it is their policy after all, written in ‘black and white’), Advisers should not make the mistake of accepting this at face value.
Contracts formed by a suite of documents, especially those where one party can or might be able to unilaterally vary the contract terms through a document external to the suite (i.e. the BOLR policy document) are inherently complex. In my view, interpreting multiple documents together, as opposed to a single document, increases the risk of inconsistency and the potential for terms to be implied, varied or even ignored by a Court. This increases the relevance of the broader legal and regulatory framework in which the agreement ‘exists’ including the Corporations Act 2001, Financial Services Laws, Australian Consumer Law, the law of misleading or deceptive conduct and equity.
Advisers should not ignore this complexity or the impact of this broader framework, in interpreting the contract, and in the law’s consideration of how AMP can act in reliance on it.
Where contracts are akin to standard form – prepared and presented by the dominant contracting party for use with multiple different counterparties – the law will closely examine their terms and asserted operation. Where such contracts heavily prescribe the obligations of the weaker contracting party and amplify the rights (possibly privileges) of the dominant one, then the factual and regulatory context becomes even more relevant.
Under the Corporations Act 2001 and its financial services laws, it is AMP who is responsible to ensure that advice given under its licence is provided ‘efficiently, honestly and fairly’. Where it isn’t, AMP is responsible under those laws. It is arguable that AMP’s liability, problems with its financial services business model and related losses of shareholder value, are ultimately because of its failure in oversight and compliance with the law. Facing significant remediation costs and commercial pressures to change its advice business, if AMP are attempting to transfer or offset the financial downside of these effects to AMP Advisers, including by AMP’s revisions to the BOLR Policy, that attempt ought to be tested by AMP Advisers in court.
Last, but far from least, for AMP Advisers, there’s equity. Often misunderstood by laypeople (and many lawyers), equity is law ‘through the looking glass’. It is not concerned with what contracts say so much as what people do and did. ‘Black letter’ gives way to consideration of ‘all the circumstances’, including circumstances specific to each Adviser. Fundamentally, equity is concerned by what is fair.
Assuming for a moment that AMP has the ‘black letter’ legal right to reduce the BOLR valuation metric from 4X to 2.5X, should it be allowed to do so? In considering this question, equity might ask: were Advisers induced by the promise and security of the 4X BOLR put option to buy AMP businesses, with loans from AMP Bank, at a price based on that 4X multiple? If AMP says that practices are now worth less because they are riddled with compliance issues, should AMP have discovered and addressed them before a Royal Commission did? Should AMP have made these risks clearer to Advisers earlier, even if it risked lessening AMP’s profits from them? If AMP Advisers now risk losing everything because of changes to the BOLR policy, and AMP might profit from these changes, in all these circumstances, should AMP be allowed to rely on the changes to BOLR?
Equity may answer ‘No’.
Conclusion
Each Adviser’s legal position will depend on their own particular circumstances. Find out what that position is. Don’t take what AMP might say about BOLR at face value. It’s not that simple. AMP just wants it to be.
Dan Mackay is a director of Mackay Lawyers & Advisors, Melbourne
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