AMP advisers planning to exercise their Buyer of Last Resort (BOLR) arrangements look set to have their business valuations slashed as part of the institution's new strategy.
AMP chief executive Francesco De Ferrari said the group will look to recalculate multiples offered as part of longstanding buy-back agreements.
Financial Standard understands AMP directed compliance staff several months ago to begin looking into historic BOLR agreements, specifically targeting those advisers with contracts entitling them to a multiple of 4x recurring revenue.
According to numerous sources, AMP has been investigating these firms with the aim of uncovering past compliance indiscretions.
Sources said some advisers have had their buy-back valuations slashed as a result and further claim AMP is using 2019 compliance standards to reassess historic audits in order to do so.
In short, businesses are being downgraded on the basis of standards and processes that didn't actually exist at the time of the original audit.
Responding, a spokesperson for AMP told Financial Standard: "Compliance has and will continue to be a fundamental aspect of our advice business model, including in determining commercial terms with advisers as part of buy-back arrangements."
"This process includes conducting audits of the client registers we acquire, which is not new."
Touching on the plans, De Ferrari flagged reductions in agreed client book valuations, confirming the group is looking into longstanding adviser contracts with a view to saving shareholders' money.
"Today at AMP, we don't have the appropriate level of return for the operational risk we're taking on advice," he said.
AMP is planning to rebalance the equation with a series of actions, one of which, he said, is to move to more appropriate market-based valuations on buy-back multiples.
"We appreciate this transition is going to be challenging for some advisers and we're committed to helping," De Ferrari said.
Adding to the pressure, AMP also announced it will cease the vast majority of grandfathered commissions in early 2020.
De Ferrari added that those practices that commit to seeing through the disruption will likely end up much more profitable, healthier and sustainable as a result.
Further, the spokesperson said AMP has thoroughly explored several scenarios in announcing the changes.
"We've also thought very carefully about the impact of the changes to the network and will be doing everything we can to support them with the changes," the spokesperson said.
"AMP continues to believe strongly in the value of face-to-face advice and our aim is to build a highly successful and professional network of advisers that deliver great outcomes for clients."
The group reported 1H19 impairments of more than $2.3 million in relation to a reduction in the carrying value of advice registers held by AMP, recognition of BOLR notices lodged prior to June 30 and expected credit losses on AMP Bank advanced loans to advice businesses.
Throughout 2020 the group will also work to reshape the aligned AMP advice network, based on the quality and professionalism of the advisers, De Ferrari said.
According to Rainmaker data, AMP and its aligned dealer groups was home to 2358 financial advisers as at June end.
While De Ferrari said it is not about the numbers, the group's investor presentation showed about 60% of advice revenue and assets under management are attributable to just 20% of practices.
The group has provisioned about $550 million to see the transition through.