The investment bank has estimated Wealth will see its earnings drop from re-pricing by $60 million in FY19. There will be lost distribution earnings of about $85 million from the sale of AMP’s life insurance business to Resolution and a fall of $30 million from Protecting Your Super reforms.
For FY19, it has projected earnings for the wealth business of $264 million, a 28 per cent drop year-on-year.
Also posed to be a challenge for the bank will be its vertical integration, as Morgan Stanley said its regulatory complexity “likely demands a rethink of the operating model.”
Morgan Stanley added that BT’s repricing of its Panorama platform will also add pressure to AMP along with other major players including Macquarie, IOOF and Colonial, predicting a narrowing in the industry.
“Given the accelerating trend towards unbundling product and platform post-royal commission, in our view the market structure in time likely evolves towards two to three large-scale, low-cost providers,” it said.
“The incumbent scale, sunk investment and deep pockets of some participants could see this potential future state evolve faster than the market anticipates.”
The analysis said options for restructuring AMP’s operating model include outsourcing retail platforms and the potential use of new tech options and players such as Link giving lower costs to serve fund administration.
Morgan Stanley said the complexity of the wealth sector following the AXA deal eight years ago, leaving eight retail platforms, three external badges, five master trusts and two trustees present challenges to AMP in capturing scale benefits, preserving margin and competing with industry funds.
Commissioner Kenneth Hayne had scrutinised the company’s use of vertical integration during the royal commission, as he had said the model gives incentive to promote owners’ products above others, even when they were not in the customer’s best interest.
