Australian Federal Court Rules Against Australia’s AMP in Class Action Proceedings Challenging Validity of ‘Buyer of Last Resort’ Policy

Australian Federal Court Rules Against Australia’s AMP in Class Action Proceedings Challenging Validity of ‘Buyer of Last Resort’ Policy

The Australian Federal Court has ruled against the wealth manager Australia’s AMP Ltd tanked in a class action proceeding that challenged the validity of some of the changes to its ‘buyer of last resort’ policy.

AMP will likely  pay more than $900,000 to two financial institutions after losing its 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.

Justice Mark Moshinsky ruled in favour of claims of the lead applicant, Equity Financial Planners, and the sample group member, WealthStone, holding that 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.

Prior to August 2019, those practices were valued at four times their ongoing revenue. However, 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 impacted the 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.

During the class action, AMP Financial Planning said about 135 group members had signed buyback agreements with the firm, of which 120 contained releases in various forms.

Equity Financial Planners did not enter into a buyback agreement with AMP Financial Planning, while WealthStone entered an agreement containing a release in favour of AMP Financial Planning.

According to AMP the Court had only determined amounts payable to the lead applicant and the sample group member.

AMP added, “Noting the complexity of the matter, AMP is reviewing the judgment in detail to determine the full effect of the judgment and its next steps.”

Consequently, AMP while accepting the Court's decision noted a process will be required to determine the impact of the decision on other group members of the class action, subject to any appeal.