In its 175-year history, there’s scarcely been a time when AMP hasn’t been a major player in financial advice in Australia. On Thursday it officially headed for the exit.
The sale of the AMP Financial Planning, Charter and Hillross licensees and the Jigsaw self-licensee services business to Entireti (formerly Fortnum) for $7 million in cash plus a 30 percent equity stake in a new holding company, NewCo, is a first step in its likely full departure from advice within a couple of years.
AMP was the last institutional advice player standing and, while this move has been a long time coming, chief executive officer Alexis George described the decision to quit advice as emotional.
“AMP has been a stalwart in advice, we’ve existed for 175 years [and] arguably, we started as an advice business when we were offering insurance,” she told Professional Planner on Thursday morning.
“Practically every person you speak to has some kind of connection to AMP in that way. So, [it’s] emotional; but I also know it’s the right thing for the business to go forward. I’m pretty pragmatic at the end of the day, and the weight of this decision has certainly been big, given all those things you raised, but I do believe it’s the right thing for the business, and actually the team’s pretty excited about going forward.”
While it will initially hold 30 per cent of NewCo, a minority stake doesn’t give it control nor much influence over what its advice networks do from here. Current AMP group executive for advice Matt Lawler will be installed as NewCo chief executive. George said AMP could quite quickly sell down that stake to 20 per cent, and it was not wedded to holding even that forever.
“We just thought it was necessary for that transition period to create some stability,” George said.
“I don’t think we need to hold that 20 per cent forever. I’m not attached to holding it into perpetuity. I just think it’s important in these initial couple of years to give stability, to give continuity to the advisers, and support that through that transition period.
“It would only be [sold to] management and advisers, I would expect.”
It tells you everything you need to know about the balance of power in financial advice that three financial advice licensees and a licensee services business have a combined value of $10 million, but minority stakes in 16 advice firms authorised by those same licensees are valued at eight times that amount.
Ironically, AMP’s own actions led to the situation it now faces – although it wasn’t alone in conducting itself in a way that first led to re-regulation of the advice industry and then a royal commission into industry misconduct.
The Future of Financial Advice reforms stopped the rivers of commission gold that advisers relied on for income, and which vertically integrated institutions like AMP and the banks relied on to channel billions of dollars into their own investment products and platforms.
Suddenly, advisers had to charge clients directly for advice services, and while that proved to be a painful transition for many of them, it represented a first undermining of institutional influence in the advice space.
Then the royal commission laid bare a litany of industry misconduct, and AMP found itself front-and-square as Commissioner Kenneth Hayne and his counsels assisting ripped into the biggest institutional advice players.
That was a probably the final nail in the coffin of the institutionally owned advice model. The big four banks headed for the doors almost immediately; Insignia (then IOOF) and AMP battled on. But first Insignia and now AMP – whose exit was slowed by a legal stoush over its Buyer of Last Resort scheme, and by the need to make the licensee businesses fit for sale – essentially quit the advice game.
Insignia has retained a salaried adviser presence; AMP has retained and will doubtless expand an intrafund advice capability (supported by NewCo); and both, for now at least, retain minority stakes in the advice businesses they have spun out.
AMP’s share price increased by 12 per cent to $1.28 by close of market Thursday, still a far cry from the over $5 per share value before the royal commission.
The decline of the institutional advice networks has cleared the way for the rise of a new wave of players, and by a proliferation of small, self-licensed firms. While this creates a new set of challenges and potential issues, for now, anyway, a new era in advice is underway.
