AMP’s deal with Entireti adds further proof that it is better to be in the business of advice than licensing.
As part of its half-year results announcement to the ASX on Thursday morning, AMP unveiled a strategic partnership with Entireti (the new parent company representing Fortnum Private Wealth and Australian Unity’s former advice business, Personal Financial Services) and AZ NGA.
Entireti will acquire AMP’s advice licensees and as well as self-licensed service provider Jigsaw, which will be spun out in a new entity currently dubbed NewCo, for $10.2 million with AMP to retain a 30 per cent stake.
The $10.2 million will be made up of 70 per cent cash with the other 30 per cent being AMP’s equity holding in the new joint venture. AMP group executive for advice Matt Lawler will be CEO of NewCo, reporting into Entireti managing director Neil Younger.
But further underscoring the disjointed valuations of advice practices and licensees, AZ NGA will acquire equity in 16 of AMP’s advice practices for $82.2 million.
AZ NGA, the Paul Barrett-led operation which takes equity in advice practices to help drive growth, isn’t a licensee but 21 of its firms a licensed by Fortnum Private Wealth and two with Personal Financial Services.
AMP chief executive Alexis George told Professional Planner on Thursday morning it’s necessary to retain part of NewCo to help maintain stability during the transition.
“We’ve already said to our advisers straight-up that we’re more than willing to sell down to 20 per cent [and] probably hold 20 per cent for a period of time,” George said.
“As you know from our financial results, we need to get the team in play in the new environment and bed down what the financials look like until we remove the remainder of the shareholder.”
George said the aim is sell down 10 per cent in the next couple of years but the remaining 20 per cent doesn’t need to be held forever with the aim to sell to management and advisers in the network.
“I’m not attached to holding it into perpetuity,” George said.
“It’s important in these couple of years to give continuity to the advisers and support Matt through that transition period.”
The move resembles Insignia’s decision to divest from its licensee business, creating what is now known as Rhombus Advisory.
George told Professional Planner last year a similar shift for AMP could be on the cards, with Lawler further detailing the pros and cons of being institutionally owned versus independently owned in February while the organisation weighed up its next steps.
In the 1H24 results on Thursday, the advice business reported an underlying net loss after tax of $15 million versus a 1H23 loss of $25 million, an improvement of 40 per cent.
There is an anticipated accounting loss on sale of the advice business of approximately $30 million in 2H24 due to separation and transition costs.
“We always said that last $10 to $15 million of loss would be hard to get out and as we work through the mechanics of that, sitting inside a listed company, also an APRA-regulated company,” George said, adding that Lawler is the only advice executive currently regulated by the Financial Accountability Regime, which governs directors and senior executives in institutional financial services organisations.
George said she doesn’t expect the licensee to make a profit in the first year of the transition, “although that’s up to Matt and the new team”.
“I think it will be a small loss,” she said.
“We’d already put in play some other things to address that loss further in the second half but as it spins out, I don’t think it will hit profit in the first year but certainly wanting to do that in the second year.”
AMP will retain its five salaried planners, who deliver intra-fund advice to AMP superannuation members.
Lawler said the licensees to be spun out into NewCo “supply services to them and we get a fee for those services today so we imagine that would continue”.
As of the end of the financial year, AMP reported having 829 advisers from 307 practices across its three licensees with a further 126 self-licensed advisers utilising the Jigsaw service. Entireti currently has 360 advisers, according to data from Adviser Ratings.
AMP Advice practices and advisers within NewCo will continue to be authorised through existing arrangements and supported by Entireti Services.
With the aim of minimising any disruption for advice practices, there will be no changes to the terms or conditions for advice practices arising from the new ownership, including professional service fees, for a period of at least two years.
In additional to Lawler, key management and employees from AMP will transition to the new entity and there will be financial support to practices to minimise impact of transition, and capital support for growth and succession planning.
