AMP to lose planners as reputation sinks to unprecedented low

Embattled wealth giant AMP faces an accelerating exodus of financial planners from its network in the wake of the past fortnight's shredding of its reputation over its treatment of customers and dealings with the corporate regulator.

AMP chairman Catherine Brenner, chief executive Craig Meller and chief legal counsel Brian Salter have all left the company after admissions at the Hayne royal commission that AMP repeatedly lied to the Australian Securities and Investments Commission  over the fee-for-no-service scandal and that it had altered a supposedly "independent" report into the issue.

Industry experts report the turmoil has now spread beyond the boardroom and into AMP's 2760 strong adviser network, with many likely questioning their future with the wealth manager.

Sources suggest the crisis will likely see AMP undergo a restructure of its business model. Its planning business is mostly made up of independently-run businesses, where the owner-planners of the business have a contract with AMP where often AMP will buy an adviser's business if they want to retire.

Daniel Brammall, the president of Independent Financial Advisers Association of Australia, said calls to the association from planners working for the big institutions since the start of the royal commission had increased five times.

Calls are now running at between 20 and 25 a month, and a quarter of those are from AMP financial planners worried about reputational issues, Mr Brammall said.

It is the owners of the small firms, such as sole owner-planners, and those with a couple of employees operating under AMP's licence who are calling to seek advice on how to go about setting-up under their own licence, he said.

“They are considering their options… one [AMP] guy said to me said that if we are ever going to go, now is the time to do it,” Mr Brammall said.

The company's buyer of last resort (BoLR) scheme came under criticism before the royal commission as it ties financial planners to recommending mostly AMP products because that increases the buy-back price.

Advisers who trigger a BoLR and who want to keep working for themselves would have to start over again after sitting-out a contractually required non-compete period.

Former AMP chief executive Craig Meller and former chairman Catherine Brenner.

Rainmaker Information director of research Alex Dunnin said AMP would continue to lose financial advisers from its advice licensees as it had in the past two years it lost 453, or 14 per cent, of its advisers, to 2760 as at the end of 2017.

“Indeed, the royal commission fallout may see these moves gather pace, but let’s be circumspect,” he said.

“AMP is by far the number one advice group in Australia," he said. The Commonwealth Bank has the next-largest planner network with 1716 planners.

“The bigger question is what precisely is AMP,” he said, pointing to AMP's wide range of investment products and AMP Capital's title as the nation’s biggest asset manager.

"AMP’s MySuper lifestage product is a top-quartile performer for millennial members and right now AMP runs the top-performing Australian equities products in the Australian superannuation system,” he said.

There were emerging areas that it could exploit, such as more direct channels like managed accounts, robo advice, simple default app-based superannuation and direct insurance, Mr Dunnin said.

AMP was placed on a negative "credit watch" by S&P Global Ratings on Wednesday following the admissions of misconduct in the advice business. While noting AMP's very strong business and financial positon, S&P said the wealth manager's market position and operating performance could be impacted should retail and wholesale customers react adversely as a result of damage to its reputation and brand.

"We believe that the group's prospective competitive position may be at risk of weakening following the damage to its brand and reputation," it said in a statement.

AMP is the main fall guy so far in the royal commission, but the cultural issues and misconduct are much wider than just AMP

Morningstar's Peter Warnes

Another potential problem for AMP could be in attracting the best and brightest from the new generation of planners, said Chanaka Gunasekera, an equity analyst at Morningstar.

“If you were a younger financial planner you would think twice about joining AMP given the media attention and widespread criticism of their conduct,” he said.

Customers might have to be more forgiving. Peter Warnes, the head of equities research at Morningstar Financial said advice clients were fairly "sticky".

It was much more difficult to switch wealth companies than bank accounts and there could be tax issues for the clients who did so, he said.

The bigger problem could be in attracting financial planning clients; through the public is likely to tar AMP and the big banks with the same brush, Mr Warnes said.

"AMP is the main fall guy so far in the royal commission, but the cultural issues and misconduct are much wider than just AMP," he said.

"People generally will be gun shy of all of them rather than just AMP."

At the company's annual general meeting on May 10, more board positions could spill and a possible first strike on pay is on the cards.

Its share price has dropped to about $4 from more than $5, a loss of more than $1 billion in market value, since the start of the royal commission. Its shares closed at $4.16 on Wednesday up 2.72 per cent for the day.

Hugh Dive, the chief investment officer at Atlas Funds Management, has sold his fund's small stake in AMP.

“I just took the view that while AMP looks OK on the valuations metrics, I couldn’t put a price what the remediation costs will be,” Mr Dive said, referring to the money AMP will have to pay in restitution to some of its financial planning clients.