AMP announced a plan to reinvent its wealth management division in the company’s half-year results release on Thursday.
Eight months into his tenure as CEO of the embattled wealth giant, Francesco De Ferrari vowed to fix AMP’s legacy issues and reshape aligned advice with “fewer, more productive advisers”, while outgoing chief financial officer, Gordon Lefevre, flagged changes to the group’s well known BOLR buyback program.
“We have a unique opportunity to reinvent wealth management in this country,” De Ferrari said on an analyst call following the announcement.
AMP will reduce its adviser numbers down from the 2614 it had listed on ASIC’s register in March, but did not specify targets – despite rumours that up to half the adviser workforce would be let go.
“This is not about the numbers, it’s about the quality and professionalism of our key advisers,” the CEO said.
De Ferrari did indicate, however, that less profitable advisers on AMP’s spectrum may be culled. Twenty per cent of AMP’s advisers contribute about 60 per cent of revenue and funds under management, he pointed out. Noting AMP’s desire for efficiency, as well as the new education standards for advisers, De Ferrari commented: “This is going to make it hard for small practices to survive.”
The release of advisers looks set to be facilitated by amendments to AMP’s maligned buyer-of-last-resort program, with Lefevre revealing “changes to master terms of our buyer of last resort schemes”.
These changes are understood to entail a reduction in the buy-out multiples AMP will pay for client books from 4.0x to 2.5x.
Ferrari stopped short of declaring a similar retreat from advice that the banks have undertaken. Rather, he said that with the other major players leaving the industry AMP has “a real opportunity to be leaders in advice”.
The reinvention of its wealth management arm will involve three objectives; modernise, integrate, and reshape. Ferrari said AMP will pivot from products to a client-led focus, with the main driver of its wealth management plan being a “whole of wealth” concept.
“We are going to do this fundamentally different to how we’ve done it in the past,” De Ferrari declared.
Among the changes to the way it runs wealth will be a tiered service delivery, where the client journey takes them from dashboards and budgeting tools to self-directed guidance, on demand services and full service.
Ongoing reputational impacts
The company will look to fund its three-year strategic plan through a capital raising venture set to raise between $1 billion and $1.3 billion, split between existing shareholders and a public offer.
The offer comes as AMP’s share price hit a historical nadir of $1.72 yesterday. As expected, the board of directors did not declare a dividend.
The announcement accompanies a dire set of half-year results for AMP, with its Australian wealth management division almost halving operating earnings from $204 million in HY18 to $103 million in HY19.
AMP Capital was the only division to increase earnings in the period, up a healthy 27.7 per cent from $94 million in HY18 to $120 million in HY 19.
The company stated that its wealth result was due to a “challenging and competitive environment”; a net cash outflow of $3.1 billion for the period played a large role in draining its revenue power.
“This reflected ongoing reputational impacts and adviser focus on client retention…” AMP stated, hinting at the group’s struggle to keep clients on the books in the wake of a damaging royal commission. It was also noted that the removal of internal distribution agreements with AMP Life and higher project costs contributed to the result.
The AMP announcement stated that it was on track to complete its client remediation program by 2021 and remains in line with its initial $778 million costing. The program is set to accelerate in the back end of the year.