Morningstar analyst Chanaka Gunasekera said restructuring the Australian wealth management (AWM) business poses the biggest execution risk to AMP’s new strategy.
“Management expect the strategy will take about three years to implement, but given the magnitude of the challenge we wouldn’t be surprised if it took longer,” the analyst said.
“Although we agree with new management’s strategy to restructure its Australian advice business, there is significant execution risk in what is being attempted.”
Morningstar expects a major fall in underlying net profit after tax by CAGR of about 30 per cent from 2018 in AMP’s advice business over the next three years as it restructures.
“Financial advisers are the closest part of the wealth management value chain to the customer and if sound advice is given, the most defensible part,” Mr Gunasekera said.
While the big four banks’ advice exit will create less competition for AMP, Morningstar warns that the reputational damage from the Hayne royal commission could have a lasting impact.
“The major execution risk stems from material damage done to AMP’s reputation as a trusted financial adviser from the Hayne royal commission revelations,” Mr Gunasekera said.
"New regulations like higher educational standards will also continue to disrupt AMP’s adviser network, as will AMP’s decision to reduce multiples paid for client registers under buyer of last resort (BOLR) agreements as part of its new strategy.”
The analyst warned that regaining the trust of the broader community is not guaranteed and at the very least it will take several years of providing customers with sound advice without any further compliance issues.
“Given AMP’s history, we believe the jury is still out on whether AMP can effectively execute this strategy and that’s why we are not forecasting a rebound in AWM earnings,” he said.