AMP, the largest financial planning group in the country, doesn’t want that title anymore, the beleaguered listed company’s acting chief executive has told analysts.
“Planner numbers are not a concentration for us these days,” said Mike Wilkins, who is keeping the chief executive seat warm for another five weeks before Francesco De Ferrari, Credit Suisse’s South-east Asia chief executive, takes up the post. “We are more interested in getting a planner cohort that is professional and productive as can be and there will need to be a reshaping of the existing business to get there.”
In its Australian wealth management business, AMP recorded net cash outflows of $1.5 billion in the third quarter this year, increased from $243 million in the previous corresponding period, due to weaker inflows. The company stated that the weaker inflows and continued elevated outflows were, in part, because of its appearances at the royal commission.
AMP shares dropped to their lowest level ever, falling more than 20 per cent, to $2.63, at the time of publishing. The abrupt sell-off was sparked by the focus the analyst community placed on the company’s outflows.
AMP last publicly reported its adviser numbers as part of its first-half earnings report in July. During this earnings announcement, it stated that it had 2566 advisers across AMP Financial Planning (1405), AMP Horizons Academy and Practice (seven, down from 26 at the previous corresponding period), Hillross (309), Charter Financial Planning (686) and AMP Direct (17). Its adviser numbers were down 7.4 per cent, from 2771.
Throughout the early oughts, AMP was a prolific acquirer of financial planning practices and dealer group practices. For more than a decade, the wealth manager attracted advice practices into its fold by offering generous multiples on recurring revenue and with the promise of buyer-of-last-resort (BoLR) arrangements. Acquisitions of dealer networks along the way – including subsidiary Hillross’s 2011 purchase of Iris Financial Group and the addition of then AXA-owned ipac Securities a year later – supercharged AMP’s advice business growth.
A new look
The growth ambitions of the once-dominant wealth manager have been put on hold, however, since the hearings on advice this April at the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, where revelations of ‘fees for no advice’ and charging dead people for wealth management services emerged.
“AMP will look very different in the future – a much different organisation with a cleaner structure that gives us the ability to compete to win back those flows,” Wilkins told analysts on a call on Thursday to announce the sale of the company’s life insurance business and the planned initial public offering of its New Zealand wealth management business.
The announcement that it’s offloading its businesses marks a new strategy for AMP that involves significantly reducing its capital reliance, Wilkins said.
Following the completion of the divestment of its life insurance business to global insurer Resolution Life, AMP “won’t have a regulated life insurance business within it so it won’t need to hold that regulatory capital”, Wilkins noted.
Completing the divestment will free up surplus capital to give the company some breathing room, Wilkins explained.
“Following the completion in 12 months, we will have a much more simplified and contemporary business, focused on wealth management and AMP Capital,” Wilkins said.
During its July earnings announcement, AMP revealed that it had taken a hit to its capital surplus and that it expected its dividend payout ratio to finish the year at the lower end of the 70 per cent to 90 per cent guidance. AMP has a $1.8 billion cash surplus, down from $2.3 billion at the end of December last year.
Wilkins noted that AMP’s “fundamentally different” capital structure following the life insurance sale would allow the company to hold less surplus capital, which he said “could be absorbed into the business or used for whatever might come up”.
AMP has already announced it has set aside a $290 million-plus contingency for reparations to its clients who have been affected by bad advice, along with an additional $50 million a year for the next three years. The company is also believed to have five separate class actions filed against it in Federal Court.
‘Lack of inflows’
While planner numbers might not be a concern for Wilkins, inflows into the advice business are.
“The current situation we are addressing is the lack of inflows [into the wealth business],” Wilkins said. “As things stabilise and we start earning back the reputation of AMP, we expect to be able to get [inflows] back.”
Paring down adviser numbers would also mean unraveling existing BoLR arrangements, which could mean an additional hit to the company’s capital position. A recent Morgan Stanley analyst report estimated that $474 million in advice fees and $1.4 billion in BoLR-contingent liabilities would be at stake if Hillross and AMP Financial Planning practices decided to leave the licensee.
It’s not just the advice business where AMP is experiencing outflows. This week, AMP lost one of its largest corporate super mandates, Australia Post, following news that it had only weeks earlier lost another client, $250 million Anglican National Super, to Mercer.
AMP’s corporate super arm, Employer Super, has more than 53,000 employers and more than $32 billion in assets under management.
“I don’t think this is the thin edge of the wedge,” Wilkins told analysts on Thursday, in an attempt to quell fears more superannuation clients could leave the wealth manager. He said the company’s current clients were satisfied with the service Employer Super was providing.
“There are some funds who in their normal cycle would test the market every five years or so and we have one or two [whose cycle] is up in 2019,” he said. “We will compete hard for those and we expect to keep them.”
Wilkins added that he believed the release of the Hayne royal commission’s final report would provide more “certainty over issues”.
