AMP’s interim chief executive Mike Wilkins concedes there is a possibility more of its corporate superannuation clients to move to not for profit funds, but says the under-pressure wealth manager will fight hard to stop the bleed.
Wilkins told analysts on Wednesday that the company’s current clients were satisfied with the service AMP’s corporate super arm – Employer Super- was providing.
But said the release of the Hayne inquiry’s final report would provide more “certainty over issues”.
“There are some funds who in their normal cycle would test the market every five years or so and we have one or two of those [where] their cycle is up in 2019,” he said.
“We will compete hard for those and we expect to keep them,” he said.
High profile losses
This week AMP lost its contract with Australia Post, following news that it had only weeks earlier lost another client – $250 million Anglican National Super Plan to Mercer.
It is understood Australia Post is currently going to tender.
AMP’s employer super business has over 53,000 employers and more than $32 billion in assets under management.
An AMP spokeswoman said it expected customers to review their service arrangements as part of “good governance”.
“If organisations decide to change default providers we do everything possible to ensure a smooth transition of members’ benefits, while continuing to provide strong returns and service to those members who decide to stay with AMP,” she said.
This comes as the Australian Council of Trade Unions calls for banks to be disallowed from operating super funds after the banking royal commission laid bare a raft of conflicts at some of the country’s largest financial institutions.
The CEO of the Australian Institute of Superannuation Trustees Eve Scheerlinck in September the group would recommend to the Hayne royal commission, regulators and Parliament that retail banks be stripped of their ability to offer a MySuper product.
Planner numbers not a concern
At the same time Wilkins said AMP, the largest financial planning group in the country, no longer wants to be the biggest.
“Planner numbers are not a concentration for us these days,” Mike Wilkins, who is keeping the CEO seat warm for another five weeks before Francesco De Ferrari, Credit Suisse’s South East Asia chief executive, takes up the post. “We are more interested in getting a planner cohort which is professional and productive as can be and there will need to be a reshaping of the existing business to get there,” Wilkins said.
Wilkins accepted there was a risk that some of its planner force may be tempted to move to industry super funds, which would further dampen down inflows.
“what I am hearing is there is some concerns out there, and as people turn up at the door it is taking longer for that to translate into business flows. And some of those business flows are going elsewhere other than AMP,” he said.
‘We’ve been quite open around what the impact of the royal commission has been on us. I think we are seeing advisers sticking with us and seeing the benefits of a long term relationship with AMP”.
Since the Hayne royal commission hearing advice sessions in April this year, where ‘fee for no advice’ and charging dead people for wealth management services revelations were aired AMP has been furthered pressured, but ready to reclaim trust.
“AMP will look very different in the future, a much different organisation with a cleaner structure that gives us the ability to be able to compete to win back those flows,” Wilkins told analysts on a call on Thursday to announce the sale of its life insurance business and the planned IPO of its New Zealand wealth management business.
The announcement to offload its businesses marks a new strategy for AMP to significantly reduce the capital reliance of the business, Wilkin said.
Following the completion of the divestment of its life insurance business to global insurer, Resolution Life, AMP “won’t have a regulated life insurance business within it so it won’t need to hold that regulatory capital,” Wilkins noted.
Completing the divestment will mean freeing up surplus capital to give the company some breathing room, Wilkins explained.
“Following the completion in 12 months we will have a much more simplified and contemporary business focused on wealth management and AMP Capital,” Wilkins said.
During its July earnings announcement AMP revealed that it expected its dividend payout ratio to finish the year at the lower end of the 70 per cent to 90 per cent guidance range, and that it had taken a hit to its capital surplus. AMP currently has a $1.8 billion cash surplus, down from $2.3 billion at the end of December last year.
Wilkins noted AMP will have a “fundamentally different” capital structure following the sale of its life insurance business that will allow the company to hold less surplus capital which he said “could be absorbed into the business or used for whatever might come up”.
AMP has already announced it has set aside a $290 million-plus contingency for reparations to its clients who have been affected by bad advice as well as an additional $50 million per year for the next three years. The company is also believed to have five separate class actions filed against it in Federal Court.
While planner numbers might not be a concern for Wilkins, inflows into the advice business are.
“The current situation we are addressing is the lack of inflows [into the wealth business],” Wilkins said.
“As things stabilise and we start earning back the reputation of AMP, we expect to be able to get that [inflows] back,” Wilkins commented.
In its Australian wealth management business AMP recorded net cash outflows of $1.5 billion in the third quarter this year, increased from $243 million compared to the previous corresponding period due to weaker inflows, the company reported. The company said it had experienced weaker inflows and elevated outflows remained elevated in part because of its appearances at the royal commission.
AMP last publically reported its adviser numbers as part of its first half earnings in July. During this earnings announcement it said it had 2,566 advisers across its AMP Financial Planning (1,405), AMP Horizons Academy and Practice (7, down from 26 at the previous corresponding period), Hillross (309), Charter Financial Planning (686) and AMP Direct (17). Its adviser numbers were down 7.4 per cent from 2,771 at this time.
