AMP Bank adviser loans in ombudsman’s sights

Australian Small Business and Family Enterprise Ombudsman Kate Carnell said a key concern in the ongoing mediation process between AMP and terminated advisers was “that AMP Bank doesn’t behave unreasonably”.

“We will keep a close eye on that – AMP Bank could call on loans based upon the fact that the BOLR was reduced, so the amount of money coming out the other end, the loans will no longer have the security of the BOLR,” Ms Carnell said.

“As we believe strongly that AMP caused that problem, we think it is important that AMP Bank, as they address ongoing loans, are reasonable.”

Just 18 of the 60 cases referred to mediation by ASBFEO have settled so far, with 15 still in progress, five failing to reach a satisfactory outcome and 25 being withdrawn.

The Adviser Association’s Neil Macdonald said AMP was assessing the personal financial position of the terminated advisers as part of the mediation process.

“AMP has said they don’t want to send people bankrupt – it’s probably still early days but what they seem to be asking for is statements of assets and liabilities for people so they can make a decision on what they’re going to do,” Mr Macdonald said.

“Some of the cases in mediation will come to some settlement on that, but we don’t know what it is. What I think AMP are more likely to do is take a mortgage on [the adviser’s] house and recoup it when they sell.”

He explained that as a result of the write-down of client book values, which had not flowed through to an adjustment of the original loan taken out by some advisers through AMP Bank, the affected advisers could walk away owing AMP money, with no security to pay off their loan.

“The ‘practice start-up offer’ was that you borrowed $250,000 secured by the register AMP gave you, but what’s happened is after some of the people have paid back the $250,000, after six, seven, eight years at AMP they get nothing to show for it, and others will have a debt still outstanding,” Mr Macdonald said.

“The complaints are around why should I walk away with a debt because of AMP’s decision, and why should I walk away with nothing.”

The mediation relates to AMP’s decision to reduce guaranteed value in its BOLR contracts from four times to 2.5 times recurring revenue, and to terminate 250 planners that were no longer profitable as a result of the write-downs.

According to a 2018 AMP Bank annual report, AMP Group Holdings had assumed indemnity as of February 2019 for losses suffered by the bank “in connection with loans provided to an AMP adviser which relate to a change to law, regulation or a change an AMP licensee makes to its arrangements with advisers, or matters identified in the course of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry”.

Outlook uncertain for indebted advisers

One affected adviser speaking to ifa on condition of anonymity said in his experience, AMP had been reluctant to take responsibility for preferential loans given to AMP Financial Planning advisers through AMP Bank.

“The practice start-up offers we had initially, that was a joint product by AMP and AMP Bank – you couldn’t go anywhere else and get what was on offer,” the adviser said.

“But now the bills are due they are saying we’ve got nothing to do with AMP Bank, you did that so it’s your problem with the bank.”

Having failed to reach a suitable settlement with the wealth manager, and still owing a sizeable debt to AMP Bank, the adviser said he was concerned the bank would soon “come knocking” to demand payment, which could mean “putting my house up for sale and kicking my family out on the street”.

The adviser said he had also lodged a complaint with AFCA around the terms of his loan, which Mr Macdonald said had been the case with a number of terminated advisers who had outstanding AMP Bank loans.

“I think most of them are still going through the process [with AFCA], I’m not aware of any that have settled yet,” Mr Macdonald said.

A spokesperson for AFCA confirmed the ombudsman had received “a small number” of complaints relating to appropriate lending by AMP Bank from adviser businesses. Due to confidentiality, the spokesperson was unable to comment on the progress of the complaints.

An AMP spokesperson added that AMP Bank was "working closely with advisers impacted by the changes".

"Our priority is supporting advisers and addressing their unique needs and circumstances so fair and reasonable outcomes can be reached," the spokesperson said.

"We recognise this is a challenging period for financial advisers, driven by the significant economic changes and disruption that have occurred across the industry. This includes the removal of grandfathered commissions, new mandatory education standards and higher advice standards.

"AMP continues to engage with advisers, the Adviser Association and the Small Business and Family Enterprise Ombudsman, including fully participating in mediation with advisers to support them through the change."