The residual value of AMP’s wealth arm is declining at a rate that could see it become an unsalvageable asset according to most advice industry executives.
Speaking under condition of anonymity, all but one of the licensing and advice executives Professional Planner spoke to painted a grim future for the advice division.
AMP’s collection of Australian wealth management businesses make an increasingly small pile of money. In 2020 net profit after tax for this unit was $110 million, down 43.6 per cent on 2019.
As recently as 2015 and 2016 this figure was north of $400 million.
As unlikely as it may have seemed back then, the industry is now faced with the prospect of AMP Wealth – until last year the biggest licensee provider in the country – having little or no value in the near future.
According to one wealth management executive the picture may be even more bleak, with AMP’s wealth business already having “probably negative value”.
AMP Wealth’s reputational miasma may not be that bad, but several executives commented that if Ares Management thought it could find a potential buyer for the beleaguered division they would have pulled the trigger on its original takeover bid for the company.
‘A hard grind’
The problems at AMP Wealth run deep; fees-for-no-service scandals, an egregious distribution funnel, legal flare-ups over BOLR agreements, a tired product line, executive misconduct and culture headaches, compliance woes and the aforementioned decline in profits and flows.
“Putting aside culture and leadership issues, let’s say a core group emerges that knows how to fix AMP Wealth,” says a separate well-known executive. “The reality is that 80 per cent of the business’s daily activities are spent fixing the past. That’s a hard grind.”
Some of AMP Wealth’s challenges are shared with the rest of the industry. Tough new education standards and the banning of grandfathered commissions, for example. Yet most of its issues are unique and have had a significant bearing on its reputational decline.
Advisers licensed under the AMP cohort of licensees have borne the brunt of this, with some revealing they don’t tell clients they’re from AMP.
“The AMP advisers have it twice as bad as anybody,” says a third executive, the CEO of a mid-sized licensee. “Those guys are going through the same reform as every other adviser, but then they’re going to client meetings and defending AMP. And the clients are asking ‘why have you got me into this?’.”
The problem most observers fix on is that AMP Wealth’s distribution model doesn’t work anymore. While Hayne stopped short of banning vertical integration – and AMP is not alone in using it – consumers and regulators are infinitely wiser to it.
“When you’ve lost your reputation and you’re not able to flog products anymore… where is the value in an advice business?” said an advice business broker.
Breaking off AMP Wealth’s licensees is possible, yet the recent closure of Westpac’s Securitor and Magnitude, as well as CBA’s cheap divestment of Count Financial to CountPlus, all indicate a poor return.
“Remember, those businesses all had decent reputations,” the broker said.
Despite AMP Wealth’s woes there are positives to hold onto.
AMP has some attractive items on display, and not just its asset management ‘jewel’, AMP Capital, which Ares is likely to pick up for about $3 billion.
Its North suite of platforms, while not building funds under management like they used to, are still widely used and the flagship MyNorth platform is a highly evolved tech asset.
The wealth management arm’s AMP Australia stablemate, AMP Bank, is reasonably strong, delivering $119 million in profit last year and reportedly being eyed off by Macquarie. (“If the neo-banks can get bought AMP Bank can get bought,” one industry observer commented.)
The appointment of ex-Sunsuper CEO Scott Hartley as head of AMP Australia is also seen as a positive step, despite his lack of M&A experience. “He’s a real straight shooter and not particularly precious,” a former licensee executive noted.
According to one head of a large licensee, there is a scenario in which AMP Wealth does right the ship.
“I wouldn’t write it off,” they said. “Conceptually, if they completely change their model and invest differently they have the scale to come out successful but it’s not going to be the way it looks today.”
From this same licensee boss comes a perspective that shouldn’t be quickly forgotten.
“I’d actually like to see it succeed in some capacity because that’s good for advice, we want to see advice succeed and we don’t want to see businesses fail. That’s not good for anyone.”