People of a certain age may have experienced a sense of déjà vu as AMP unveiled another transformation strategy last week and vowed – once more – to focus on customers.
We’ve heard it before, and if the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry demonstrated anything, it is that financial institutions are adept at saying one thing but doing something else entirely.
The interesting issue surrounding AMP is not how it all went wrong. It has been slow to change, and in some instances has deliberately sought to undermine the intent of new laws governing adviser conduct. It remains weighed down by legacy issues, such as buyer-of-last-resort (BOLR) arrangements, the structure of which has no place in a modernised advice industry. It’s been focused on size (assets under management, adviser numbers) rather than efficiency and profitability. And it’s not overstating things to say the company has a shaky relationship with regulators.
The interesting thing is not even the plan the board and senior management have hatched to address the company’s issues. It will focus on more profitable advisers and advice businesses and re-engineer its advice network. It aims to focus on growth in its salaried adviser segment, to divest its life insurance business and use funds for capital and new projects. And it will invest in technology and direct-to-customer business lines. But a plan is only as good as its execution, so let’s wait to see how it’s implemented.
Its track record isn’t stellar. When AMP demutualised in 1998, it emerged with an estimated $7 billion of surplus capital to reinvest in its businesses. It’s worth noting (and yes, we know, this is not how business works) that had $7 billion been invested in a fund that tracks the ASX All Ordinaries Accumulation Index, it would have earned almost 9 per cent a year and been worth around $38 billion at the end of July this year. At the time of writing, AMP’s market capitalisation was less than $6 billion.
No, the really interesting question is whether a financial advice profession needs AMP at all. The profession needs a transformed AMP, certainly, but it can well do without an AMP that clings to the ways of the past.
When one of AMP’s former competitors in the advice space, Commonwealth Financial Planning, was working to remediate customers who had received poor financial advice, its then-leader explained that it was incumbent upon CFP, as a major advice provider and representing the Commonwealth Bank’s brand, to work harder than any other player to put things right. AMP could take a leaf from this playbook.
The future of AMP should be of vital concern to anyone who believes good financial advice can and should be delivered affordably to as many people as possible, and who believes the professionalisation of financial advice can be achieved only if its biggest players are fully on board.
An AMP built on a business-as-usual mentality is not in anyone’s interests – not consumers, not financial advisers, and not AMP staff and shareholders. An AMP that remains wedded to outdated modes of behaviour and continues to resist meaningful change has no place in a modern financial services industry. The days clinging to the historical, conflicted ways of conducting business have gone.
Incumbency may once have been a competitive advantage, but it isn’t any more. No business has a divine right to consumer loyalty and trust – both must be earned the hard way and can only be maintained through consistent discipline and effort. Adaptability, flexibility (dare we say it, “agility”) are paramount in the face of digital disruption, disintermediation of products and services, and radically shifting consumer expectations.
There will be winners if AMP gets this right, and at the top of the list are consumers, who stand to benefit from a better advice, and better pricing. Advisers who remain with a transformed AMP will be much better placed to serve clients professionally, ethically and profitably. And shareholders will be winners if AMP is successful with its planned strategy.
A high-stakes game
This is different to previous occasions when AMP has embarked on transformation programs – the future of the company as a relevant player in financial services is very much on the line. And while it has some strengths on which to build, including around $130 billion of Australians’ money under advice, it faces some significant challenges.
It must rehabilitate its reputation with the regulators, clients and the media. It has to realise that it is part of a greater financial services industry, not apart from it or above it, with clear consumer demands and expectations. And it needs to address the employee and adviser cultural issues that have stymied previous attempts at reform.
The royal commission didn’t outlaw vertically integrated financial services structures, but it’s clear that some of the issues the inquiry brought to light were at least facilitated by such structures. AMP was described in the inquiry as being comprised of multiple business lines, operating under the same banner but more interested in doing business with each other than working for the best client outcomes. So, another challenge facing AMP is how to make its structure truly work in favour of clients, to harness economies of scale to deliver technically sound, compliant and professional advice without compromising its advisers’ duty to serve the best interests of their clients.
If AMP genuinely transforms itself then there will be significant benefits for consumers in a large, healthy organisation with a vibrant and modernised adviser network delivering professional services to the broad community.
But if it fails to transform itself, and if all it does is continue looking for ways to defend and preserve conflicted business structures and support advisers in delivering services the old way, then it’s worth asking whether the financial advice profession might not be better off without AMP altogether. It that’s the case, better a short, sharp demise than a painful and protracted one.
Note: This post was edited on 9/8/19 to remove a reference to education from a sentence stating that AMP had “deliberately sought to undermine the intent of new laws governing adviser education and conduct”.