AMP chief executive Francesco De Ferrari would not elaborate on how many of these would go.
The wealth giant’s plan also includes a significant reduction in what it will pay retiring planners, or those who wish to exit the industry, to buy back their client books under its buyer of last resort (BOLR) program.
The new scheme will see AMP pay advisers a multiple of 2.5 times the earnings from their clients to buy their businesses, down from 4 times earnings under the current scheme.
AMP Financial Planners Association chief executive Neil Macdonald said the group would vigorously contest these changes to the terms of the BOLR.
“AMP was contractually obliged to consult with the group over changes to the terms, and also to give its members 13 months notice of any changes that would have a detrimental effect on them,” he said. “AMP has done neither.”
“The reduction of the multiple applied under the BOLR terms is potentially disastrous to many advisers.
AMP has a ‘get over it, go broke and move on’ attitude
“Overnight, many advisers who have invested four times recurring revenue and provided years of service to AMP and to their clients, have seen the amount promised by AMP on exit decimated.”
One AMP-aligned adviser, speaking on condition of anonymity, suggested the changes could result in him losing up to 40 per cent of the revenue from his businesses.
“How many small businesses can sustain a 40 per cent revenue loss?” he asked. “With revenue decreasing markedly and the cost of services increasing, some businesses will no longer be viable.
“AMP has a ‘get over it, go broke and move on’ attitude.”
For some aligned advisers, AMP’s decision is a double-whammy.
They have borrowed heavily from banks to buy client books from AMP at a value of four times revenue, only to find their books are now valued by AMP at just 2.5 times revenue.
AMP Financial Planners Association’s Mr Macdonald said the client books were often purchased with loans funded by AMP Bank.
“In many cases advisers had to put up their family homes as security,” he said.
Given the existing stress on business revenue as a result of increased back-office obligations following the royal commission and changes to revenue streams, Mr Macdonald said repaying the loans would be extremely difficult for some advisers.
Many aligned AMP advisers feel they are being punished despite years of loyal service to the wealth manager.
Philip Kewin, chief executive of the Association of Financial Advisers, said advisers had contractual arrangements in place with AMP and it now appears the company would not honour them.
“It’s a devastating blow for the industry,” he said.
AMP is the latest in a string of major players to back away from the troubled financial advice business, which was one of the biggest problem areas for banks identified during the royal commission, especially with its “fees for no service scandal.”
Commissioner Kenneth Hayne said a key problem in the sector was its conflicted models of remuneration stemming from the banks’ ownership of many of the large financial planning brands.
The Commonwealth Bank revealed on Wednesday that it will close its advice business, Financial Wisdom, by June of next year as the lender continues its retreat from the sector.
It had already announced the sale of Count Financial and its 359-strong network of advisers to ASX-listed financial services firm CountPlus for just $2.5 million in June.
CBA will also provide a $200 million indemnity to CountPlus for any future remediation costs.
The bank had purchased Count Financial for $373 million in August 2011, attracted by its big network of financial planners.
Westpac in March slashed 900 full-time jobs as it quits its loss-making financial advice business and restructures its wealth and insurance arms.
And National Australia Bank is expected to soon provide an update on plans for its MLC wealth arm, which could include cuts to adviser numbers. It will give a quarterly trading update on Wednesday.
That leaves IOOF, which has about 1800 advisers, as the main institutional player to reveal its outlook for financial planning.
Chief executive Renato Mota said last month its recent growth had been fuelled by 600 advisers it added last year from three of ANZ’s aligned dealer groups.
Mr Mota said organic growth and an advice-led strategy would continue to be IOOF’s main planks going forward.
However, with IOOF due to report its second-half earnings on August 26, many advisers are bracing themselves for potentially bad surprises.
The number of financial advisers is shrinking, with limited new entrants and a constant trend of leaving advisers.
The move by major financial institutions to back away from financial advice is likely to turn the number of advisers exiting the business from a trickle to a flood, industry professionals say.
Financial planners have already been leaving the industry in unprecedented numbers.
Dante De Gori, chief executive of the Financial Planning Association, estimates more than 2000 advisers from its 14,000 membership base would already be affected by recent closures or major changes to wealth businesses.
In the first half of this year, there were 2806 fewer people licensed to give advice across the country – a decline of almost 10 per cent.
“The number of financial advisers is shrinking, with limited new entrants and a constant trend of leaving advisers,” said Mark Hoven, chief executive wealth of Adviser Ratings, a service that rates financial advisers.
“There are about 25,000 planners now and I would be very surprised if that number was not heading towards 20,000 by the end of this year,” he said.
Mental health issues on the rise
Yet there’s an even greater, unseen cost to the adviser industry apart from raw numbers and the plummeting of business valuations.
Many of the smaller financial planners employing between two and 10 staff.
Mark Burgess, an insurance specialist at MB Advice, said mental health issues in the sector are increasing at an alarming rate.
“What is particularly distressing is the unfolding story of the human toll these changes are having on advisers, their staff and their families,” he said.
“My own licensor has offered counselling services to advisers and staff due to the increasing reports of mental-health issues,” he said.
“And there are many more cases of mental health issues not being reported, nor the impact on family members.”
Association of Financial Advisers’ Mr Kewin said the shake-up of the industry would result in a “critical loss of very experienced advisers.”
“I’m concerned that there is so much upheaval that the people that are supposed to benefit in the end, those seeking advice to help them, will not be able to get access to affordable financial advice.
“Advice will become more expensive and the average Australian won’t be able to afford it,” he warned.
Michael Rice, executive director of actuaries firm Rice Warner, said it was clear that the Australian Securities and Investments Commission wants planners to act explicitly in the best interests of their clients.
You cannot be an institution that trains a whole lot of advisers simply to funnel people into your own product
“You cannot be an institution that trains a whole lot of advisers simply to funnel people into your own product,” he said.
The future of financial planning is independent advisers funding their own businesses and, if the institutions have products that are good enough, “they will recommend them to their clients”, he said.
Claire Mackay, a financial planner and director of Quantum Financial, says businesses that are predicated on commissions and the selling of financial products have diminished the value of advice.
“Consumers are not seeking product sales. They are seeking strategies and recommendations that help them put their family finances in a more secure position,” she said.
“Studies have shown that consumers who have a quality adviser, who is working with them on a strategy, are financially better off than they would be otherwise.”
Stephen is Investment Editor at The Age and Sydney Morning Herald. He writes about personal finance issues and markets as well as editing Money.
Writes about personal finance for The Sydney Morning Herald and The Age.