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AMP blames royal commission for $6.3bn wealth outflows

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In the year since the Hayne commission, AMP has not been able to remedy its burned reputation, failing to prevent it from striking its Australian wealth business with $6.3 billion of cash outflows and a halved profit.

The group posted a $2.5 billion loss attributable to shareholders for the full 2019 year, a drastic downfall from its $28 million profit in FY18. 

The loss was largely down to a post-tax impairment charge of $2.4 billion for the year, including $2.35 billion taken out in the first half to “address legacy issues and position AMP for the future”.

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Shareholders could also forget about dividends, they were scrapped, with there being a loss per share of 79.5 cents. The group said it would review shareholder payouts after the sale of its life insurance business was completed.

Total operating earnings were at $544 million, dropping by a quarter (25.3 per cent) year on year. AMP’s underlying profit was $464 million, a plunge of 31.8 per cent. 

Despite it all, the board upped chief executive Francesco De Ferrari’s maximum short-term bonus to 200 per cent of his fixed base salary, changing from its previous maximum of 120 per cent. Mr De Ferrari’s base pay was set at $2.2 million when he was appointed in 2018.

When pressed on the increase during a media briefing, Mr De Ferrari stated his remuneration was a matter for the board and bonuses are discretionary. He is the midst of leading the group through a three-year “roadmap to recovery.”

“I’m really focused on delivering the three-year plan that I came here to deliver,” he said.

“I suppose if I don’t perform, I don’t get paid.”

‘Reputational impacts’ hits wealth

In the Australian wealth business, AMP produced a profit of $182 million, plummeting by 49.9 per cent from the year before. It also saw $6.3 billion in net cash outflows during the period, including $2.4 billion in pension payments, following on from $4 billion in outflows in FY18. 

And there has been an upheaval of the group’s advice division; in the past year, 440 advisers have exited the group. 

But chief financial officer James Georgeson stated the mass cash withdrawals from the wealth segment was not due to its adviser exodus, rather, the effects of royal commission had lingered, alongside competitive pressures.

“The 440 advisers we’ve lost throughout the year are generally the lower productivity advisers. We’re seeing much more the reputational impacts from the royal commission are impacting cash flows rather than the advice network changes,” Mr Georgeson said. 

“As reported, we asked some advisers towards the end of last year to provide some insight to us around what their future plans were. And we’ve obviously closed a lot of those [advice businesses] towards the end of the year, they will exit the group in 2020. Some of that work will start to hit in 2020.”

The wealth operating earnings were split in half, down 50 per cent to $182 million – which AMP said was due to the sale of the Life business hitting distribution arrangements between its advice and wealth businesses, higher costs and lower investment related revenue due to changes including MySuper repricing.

With the company also enacting an overhaul of its superannuation business: cutting down on its products, options, funds and trustees; the further effects on future earnings for the wealth segment are unclear.

As highlighted to investors on Thursday, the group has aimed to complete phase one of its program in the coming year. 

It wants to be down to one retail super trustee from two, one retail fund from six, and two product admin systems from nine by mid-2020. By next year, it has planned to have reduced its 70 odd products to six and roughly 170 investment options to around 50.

It has already cut back on fees across its super offering.

Mr De Ferrari commented that the simplification process would not disturb most investments placed in AMP Super. 

“If you look at the dispersion of the investments on the master trust side in the industry, you would see that the large majority of investments are in the default balanced fund profile. We think we will have a much stronger offer with much better client outcomes from our simplification program,” he said.

“AMP has had a lot of scale, but often carried a lot of historical complexity. You’ve also heard the regulators be very open about the need for consolidation in the super industry where a lot of the small funds really had a hard time ensuring good client outcomes.”

Investment related revenue for the wealth segment was $1 billion, a decrease of 11.8 per cent – the bulk of its total revenue of $1.09 billion, which had fallen by 16.3 per cent.

However, assets under management (AUM) in the wealth segment had increased by 9 per cent to $134.5 billion – although investment related revenue to AUM fell by 11 basis points.

The cost-to-income ratio had also increased for AMP Wealth, up by 18.9 percentage points to 65.3 per cent in FY19.

Remediation to be completed next year

For FY19, the group had $153 million in remediation costs, compared to $469 million in FY18. AMP stated the amount primarily related to inactive advisers – pointing to fees for no service and inappropriate advice.

It expects to have 80 per cent of the refund program completed by the end of the year, with a final finish in 2021.

Meanwhile AMP’s Bank produced a profit of $141 million, down by 4.7 per cent. The New Zealand wealth business generated $44 million, a drop of 17 per cent and AMP Life copped a loss of $21 million, expanding on the previous year’s loss of $3 million.

AMP Capital was the strongest performer, managing a profit increase of 18.6 per cent to $198 million.

Its AUM increased by 8 per cent to $203.1 billion, while fee income increased by 13 per cent to $800 million. 

Total AUM for the group was up by 5 per cent to $272 billion.

AMP said it would be divesting from the NZ segment last year, but for now, Mr Georgeson said, the bank will wait until the half year to update its status.

For the Life business, which is set to be sold to Resolution Life, there are separation costs of $183 million for the year, piling on with an extended timeframe and additional simplification work and costs to build to a total cost of $400 million.

 

AMP blames royal commission for $6.3bn wealth outflows
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Sarah Simpkins

Sarah Simpkins

Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth. 

Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio. 

You can contact her on [email protected].

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