While the royal commission didn’t recommend the breakup of AMP’s vertically integrated business model, the reputation of its wealth arm has been materially damaged and it will likely take several years before FUM – and earnings – are back on track.
But AMP Capital and AMP Bank have both continued to shine.
AMP Capital is the “stand-out performer in the group’s stable of businesses”, with a 19 per cent increase in NPAT from 2018.
“We expect AMP Capital’s business to continue its strong earnings growth momentum,” Morningstar said in a note, adding that they believe it will constitute a higher proportion of group earnings in the future.
The pick-up in home prices and home loan approvals will also see stronger home loan growth for AMP Bank. However, higher regulatory and compliance costs weighed on AMP Bank’s earnings, with MPAT 5 per cent lower than 2018. And AMP’s wealth management arm is likely to be a drag on earnings for the foreseeable future, with Morningstar noting that the company will be in a “period of transition for the three years at least”.
But while AMP’s wealth management arm might be down, it isn’t necessarily out, due to the relationships it has fostered over the years and the sheer reach of its wealth arm.
“We believe it would be difficult for a new entrant to easily reproduce these types of relationships and replicate AMP’s distributional reach and brand recognition among Australian financial advisers and the general public,” Morningstar said in a note.
“These strong relationships also generate switching costs, both monetary and non-monetary.”
For advisers, those non-monetary costs include the difficulty of learning a new wealth manager’s procedure and understanding its systems. For clients, non-monetary costs could be the hassle involved with closing an account and opening a new account with another wealth manager.
However, Morningstar does expect a “significant reduction” in AMP’s network of financial advisers over the next few years due to the material reputation damage suffered from the royal commission, as well as stronger educational requirements and the phasing out of grandfathered commissions.
The reputational damage will also make it harder for AMP to attract clients and new FUM in the next few years.
