300 AMP financial advisers are on notice amid a corporate watchdog probe

Picture: Getty Images

AMP has put more than 300 advisers on notice that it may discontinue their licence to provide financial advice as the under-pressure wealth manager tries to reduce risks, amid a corporate watchdog probe and possible legal action.

The Australian Financial Review understands from multiple sources within AMP that the company’s partnership managers have been telling some self-employed planners that they have as little as three months to find a new operating licence.

Without an operating licence, known as an Australian Financial Services Licence, planners are not legally able to provide financial advice to their clients.

AMP is under pressure after being singled out at the Hayne royal commission for charging clients fees for advice that was not given.

Other financial planning businesses came under heavy criticism for providing unsuitable advice with one business, Dover Financial, closing its doors and leaving 400 of its affiliated planners at risk of being unlicensed.

Partnership managers at AMP are meeting with advisers, examining their businesses and determining whether a practice is fit to stay with the wealth manager. If not, AMP will facilitate the planner’s exit.

“It’s our standard practice to continuously work with all our advice principals to help them create sustainable, high-quality businesses in order to best serve their clients,” said an AMP spokeswoman in a statement.

AMP financial advisers were reluctant to speak publicly about any correspondence with practice managers, and one source said they had been “spooked”.

AMP always ‘needed control’

The Financial Review understands recruiters who specialise in placing financial advisers say they have been told by AMP, that the wealth manager will no longer take on sole practitioner planners.

But the AMP spokeswoman said that this was not the case adding that “we’re still recruiting advisers into AMP and we offer a variety of different pathways – employed, aligned, direct – to best suit their careers”.

According to data from Adviser Ratings there are a little over 5700 “one-man band” advice practices in Australia, compared with 245 planning businesses with 10 or more planners.

AMP has 335 single adviser-run businesses working under its licence, out of a total of 2600 financial advisers, the largest planner force of all major wealth management institutions in the country.

Paul Tynan, the chief executive of Connect Financial Services Brokers, which helps advisers wanting to buy, sell or merge a practice, said AMP has always “struggled with self-employed advisers”.

“AMP has never had in its DNA to have fully separate advising groups. Their business model has always been that they needed control,” said Mr Tynan, who spent almost 25 years working at the wealth management giant.

AMP runs a number of different financial planning units. Its salaried planners work under the iPac banner, while some self-employed planners come under the Charter Financial Planning and Hillross dealer groups.

‘Ticking time bomb’

Mr Tynan said the wealth manager has always focused on its own AMP Financial Planning, which with more than 1400 planners is the largest group in the business, because of the control it gets from the Buyer of Last Resort clause.

BOLRs are legacy agreements where AMP guarantees to buy the business if the adviser wants to retire. AMP’s BOLR agreements are priced at four times recurring annual revenue, which is well above the market price.

The agreement is a two-way street, in that if the BOLR clause is triggered the planner must hand back ownership of his or her clients back to AMP, and commit to a three-year non-compete clause upon leaving, creating a disincentive to leave the business.

Some industry sources speculate that these BOLR contracts could become a “ticking time bomb” for AMP, if large numbers of financial planners decide to exit the company amid evidence of malpractice heard by the banking royal commission.

Some advisers are understood to be concerned about the reputational risk of being associated with the beleaguered wealth giant.

This comes as the corporate regulator consults with the Commonwealth Director of Public Prosecutions over its “ongoing” investigation into AMP over revelations, unearthed by the Hayne inquiry in April, that the company charged fees for financial advice it did not provide and then misled the regulator about it.

ASIC sticking with probe

Australian Securities and Investments Commission chairman James Shipton told the House of Representatives economics committee last month that it would continue its probe, with potential civil and criminal outcomes for AMP.

An industry insider who did not want to be named said AMP may be concerned there could be compliance issues with sole traders, saying it might be too “risky” to keep them under the company’s licence, with oversight being a problem.

In January this year ASIC issued a report looking at conflicts of interests and the advice offered through the big banks and AMP, recommending that advisers needed regular compliance coaching.

There also need to be “improvements in the advice licensee’s audit processes, or providing training for advisers on conscious or unconscious bias when giving advice on products on the approved product list”, said the report

ASIC last week announced that it would sue AMP for failing to take action against planners who “churned” clients into similar, new insurance policies so they could claim inflated commissions.

“By advising clients to submit new applications, the financial planners stood to receive higher commissions than they would have received under a transfer, while at the same time exposing the clients unnecessarily to underwriting and associated risks,” the regulator said.

“ASIC alleges that this type of advice was inappropriate, and that the financial planners failed to act in the best interests of the clients and to prioritise the interests of the clients.”

This article was originally published by the Australian Financial Review. Read the original here, or follow the AFR on Facebook.

NOW WATCH: Money & Markets videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.