In October and November last year AMP held more than two dozen roundtables with the principals of practices in its network to ask them their preferred options for a potential restructuring of the advice operations.
Unsurprisingly, there was no unanimous view among the principals. Some said they prefer the security and the backing of a licensee owned by an institution. Some said they thought they could fulfill their fiduciary obligations to clients more effectively if the licensee was spun out to create a stand-alone professional services firm.
What is perhaps more surprising is that AMP is even talking about strategic alternatives at all. Not that long ago, the once-mighty financial services giant looked to have one choice: go out of business slowly, or quickly.
But now, it is thinking deeply and speaking publicly about its long-term position in advice. AMP chief executive Alexis George discussed it during the company’s 2023 full-year annual results announcement earlier in the month; and at the 2024 AMP Advice Live event in Adelaide this week, group executive for advice Matt Lawler sat down with Professional Planner to discuss the changes in the business in the two years he’s been there, and its future.
Lawler spoke to the publication shortly after demographer Bernard Salt told about 450 AMP advisers at the event that throughout human history “on the other side of calamity” there is always renewal, and a resumption of growth. Salt noted that significant calamities generally take about five years to recover from.
It’s just over five years since the devastating final report of the Hayne royal commission gave AMP, and others, an absolute pasting over their historical conduct in delivering financial advice. The timing was not lost on Lawler.
“That’s a great analogy,” he said.
“It’s about reinvention. AMP, and AMP Advice in particular, is a very different business now than it was a few years ago.”
Adviser re-engagement
Lawler said engagement with practice principals has been “really important for us to get a baseline for where advisers would like us to go”.
“There’s no point in us doing anything if the practice principals say, well, you know, we’re walking down the road, all excited about something, and we turn around and there’s no one behind us,” he said.
Lawler said no decision on the future of AMP’s advice business will be made without full consultation with the advice practices in its network. But he’s open-minded about the two options it’s mulling: remaining fully owned by AMP; or being spun-out into a standalone entity in which AMP retains a significant, though minority, interest in a similar model being pursued by Insignia Financial.
“We haven’t gone as far as how would you structure the equity holdings underneath,” he said. “We’ve still got work to do before we get there.”
Lawler said they are looking at these as alternatives, but the focus is to get the business in a sustainable position first.
“We need time to be able to make [the decision] because the last thing you want to do is spin a business out that’s got all of these legacy issues,” Lawler said.
“It doesn’t give it a good chance of succeeding; you actually cripple it before you even start it.”
Lawler said AMP advisers understand the benefits of institutional ownership, but also are attracted to the benefits of an advice business standing outside AMP.
“I mean, ideally, they’d love the backing of the institution, but to be standalone,” he said.
“You’re not going to get both of them. But I think that they also probably feel that being fiduciary is important.”
Lawler said AMP is now getting itself “into a position where we’ve got those options”, and there clearly are pros and cons to remaining inside the AMP group.
“The pros are, you’ve got a big parent that sits behind you,” he said.
“The cons are that you’re still institutionally owned, and that what comes with that is a perception that you’re not fiduciary.
“And maybe it is time for these [advice] businesses to be fiduciary in the way they deal with the clients and the way they deal with referral partners, even when staff are thinking about joining, or when buying another business, they actually want to be coming into a business that they feel is fiduciary.”
Lawler said a belief that the institutional ownership of AMP’s advice business gets in the way of its advisers being true fiduciaries is an enduring myth, perhaps true of the “old” AMP but not true of its current structure.
“Even though the practice themselves is fiduciary in how they deal with clients’ best interests, there’s still that perception and that feeling that because of the past, they’re going to be forced to only talk about AMP products,” Lawler said.
He said AMP advice practices are now “as open-architecture as any other practice, self-licensed or otherwise, in the marketplace”.
“They are, for all intents and purposes, operating as that fiduciary business, but inside an AMP umbrella,” he said.
‘Pretty much like every other business’
Since the royal commission and a mass exodus of banks from financial advice, and following Insignia’s plans to restructure its own licensee businesses, Lawler said there is no other business out there “that’s like us now”.
He said restructuring of AMP’s own advice operations would leave it “pretty much like every other business model, now that Insignia have decided to go their way”.
But before anything can happen, AMP needs improve the financial performance of the advice business from a 2023 full-year loss of $47 million.
Lawler said that in 2024, AMP will make significant inroads into its costs as it terminates unprofitable technology programs; reduces headcount for programs such as remediation that have been concluded or are winding up; sees contracts expire for services it no longer uses; shoulders a smaller burden of shared AMP corporate expenses; and even saves money on rent as a result of fewer employees overall and fewer employees working in the office every day.
Lawler said AMP has made the mistake before of developing its own advice technology and it won’t make the mistake of trying to be “architect and builder of technology” again.
“That’s a hard game to be in,” he said.
“One, it requires consistent capital to be invested. And two, you have to have the internal capability to constantly innovate and evolve.
“We have not done that well. We failed on a couple of occasions, and we failed big on a couple of occasions. Our future will be [as] a renter, and a partner of technology providers. But we won’t be building technology internally.”
At Advice Live, AMP unveiled a partnership with Yodal to offer an estate planning service to help advisers better handle a coming wave of intergenerational wealth transfer. It’s a development based on feedback from practice principals at the October/November roundtables, and brought to market in a matter of months.
Meeting the changing needs of advice practices
Lawler said an increasing proportion of practices under the AMP umbrella have evolved from being small businesses, often with only one or two advisers, to small corporates, “many of them running 10, 15, 20, 30 staff now”. That evolution demands different needs of the licensee.
“That corporatisation means that it’s not about one person anymore, it’s actually about how the company operates,” Lawler said.
“Things like culture, things like leadership of those businesses, things like employee value propositions become very, very important to those businesses. There’s process design, process documentation – how do you make sure there’s consistency of delivery across the larger business?”
Lawler said these small practices can quickly grow to small corporates with different HR needs and evolving cultures.
“We have to adapt and evolve with that in order to support those businesses,” Lawler said.
“We have to change because the needs of the practices are changing, we have to evolve in order to support that.”
AMP will also step up its equity participation in the practices in its network. As an equity investor looking for a return on capital, it will have an eye on helping practices grow their revenue, but also on reducing costs.
But one area of costs which could be reduced is by paying a lower fee to a license.
Lawler said this conflict isn’t likely to arise in practice because it’s not only about costs, but also about how the service provided affects the business.
“If it saves the business time, and it stops the business from being distracted and not focusing on finding new clients and growing their client base, well, it’s actually a cost that’s an investment more revenue,” he said.
But there are some costs that are unavoidable and which Lawler argues shouldn’t be skimped on.
“This is always the argument that I have,” he said.
“Compliance costs and audit costs are a good example. People will try and get the cheapest version of an audit, and my criticism has always been: why isn’t there a standard for how practices are audited?”
Lawler said encouraging advisers to pay the lowest possible cost for a very simplified version of an audit, which won’t pick up any issues is ultimately counterproductive, for the adviser and for the profession.
“As a profession, we’ve got to find the issues, and we’ve got to report them,” Lawler said.
“That’s why you see very little [reporting] in the self-licensed market. They don’t have those systems; they don’t have those checks. We do. We do find stuff, and we do report it. But that should be healthy for a profession.
“That’s where we think that there should be higher standards so that it’s not seen as expensive, it’s actually seen as a necessary thing to maintain the professionalism of the sector.”
Editor’s note: the author attended the 2024 AMP Advice Live event in Adelaide as a guest of AMP.
