Hefty legal bill looms for AMP after losing class action

AMP will likely pay more than $900,000 to two financial institutions after losing a class action in the Federal Court over the reduced prices it offered to pay to buy their financial planning businesses, with hundreds of other financial planners potentially entitled to damages.

On Wednesday, Justice Mark Moshinsky ruled in favour of claims of the lead applicant, Equity Financial Planners, and the sample group member, WealthStone, saying they were entitled to be awarded damages by AMP of $813,560 and $115,533 respectively, with the orders to be finalised at a further date.

The claims were related to AMP Financial Planning’s decision in August 2019 to decrease the earnings multiple at which it proposed to buy financial planning businesses from some retiring advisers, devaluing their businesses by more than a third and leaving many in debt.

Under the previous policy, known as the buyer of last resort, financial planning practices in AMP’s network were given the opportunity to sell back their client books to AMP Financial Planning with 12 months’ notice. Before August 2019, those practices were valued at four times their ongoing revenue.

In August 2019, AMP Financial Planning changed the multiple from four to 2.5 times to cut costs, and its grandfather revenue plan was changed from four times to 1.42 times, with further monthly reductions planned until it reached zero in January 2021.

The changes also affected practices that had submitted a buyer of last resort application before August 2019, with applicants unable to withdraw their application without AMP Financial Planning’s consent.

Neil Macdonald, head of the Advisers Association, said the Federal Court’s judgment opened up the possibility for more financial advisers affected by AMP Financial Planning’s changes to receive recourse.

Loading

“Basically, the judge found AMP couldn’t change the BOLR [buyer of last resort] terms without giving notice,” Macdonald said. “So potentially that opens up the case for people who could have put their notice in, but didn’t because they weren’t given notice. There would have been about 500 other firms at the time and unless they specifically opted out of the class action, they would have automatically been included.”