AMP boss de Ferrari seeks peace with the regulators

AMP boss Francesco de Ferrari fears royal commission fallout will make financial advice too expensive.

Francesco de Ferrari at AMP’s Sydney offices: ‘The only way we solve this, for the right of the country, is to come together in partnership’. Picture: John Feder.

Two things stand out from a sit-down with Francesco de Ferrari, AMP’s chief executive.

First, he has grave concerns that the fallout from the Hayne royal commission will drive financial advice far beyond the reach of ordinary Australians, just at a time when they will ­really need it.

Second, he sees a reset between AMP and the regulators as critical to the survival of both AMP and the financial advice industry. And based on his international experience, his planned turnaround could see up to a third of financial advisers leave the business.

AMP emerged from the royal commission with a broken business model and a reputation in tatters with the loss of both its chair and chief executive.

Incoming chairman David Murray needed a change agent and offered de Ferrari the most challenging job in business: a three-year turnaround of the 170-year-old, badly besmirched wealth legend.

De Ferrari, after a very successful career at Credit Suisse, was already earning good money. He took on the job, he says, because it struck a few very important chords.

“The sense of purpose of this company, and I love disruption, and so this is a unique opportunity to build a new financial model that I think the world desperately needs — especially after it has been 170 years making wealthy people wealthier, the ability to bring that knowledge and experience and be able to deliver it to the average Australian, for whom it matters the most.”

Charging for financial advice that wasn’t received, charging dead people for insurance, misleading the regulator, being referred by the royal commission for possible criminal and civil prosecution and now two class actions on the go — how do you come back from that?

De Ferrari speaks of a painful cultural change that will win back trust, one transaction and one customer at a time, but it is his approach to the regulator that is new.

Last month, AMP admitted wrongdoing in its insurance business, churning customers to gouge fees, allowing ASIC chief prosecutor Daniel Crennan an early victory. AMP has also agreed to hand over confidential documents to ASIC concerning its alleged misleading conduct.

“It is quite a change,” acknowledges de Ferrari, “and we are obviously all in a very difficult situation. I think the industry is, the regulators equally have the same amount of public pressure to try to right some of the wrongs of the past, and so for me, we both want the same thing.

“So while we are today seemingly more divided, the only way we solve this, for the right of the country, is to come together in partnership and find a mutually acceptable way forward.”

Murray has spoken highly of De Ferrari’s respectful handling of regulators in financial advice in Italy and wealth management across Europe in the wake of the global financial crisis, and while at Credit Suisse in the US Department of Justice investigation, which involved hefty fines for the bank.

But Murray also cites the values of his CEO: he kicked off his career turning down Goldman Sachs to work with Mother Teresa in Calcutta for goodness’ sake, and later founded start-ups with both success and failure under his belt.

The question remains as to how de Ferrari can drive cultural change through AMP, which has been exposed as so flawed.

“There was clearly a lot of behaviour that was not acceptable and we need to rectify that very quickly. We’re here to help customers and I truly believe that most of our employees have this DNA in mind. So a big part of our transformation has to do with the business model but also the culture. We need to adapt our culture to be more agile and more entrepreneurial as we go forward.”

De Ferrari is struck by how many Australians have connections with AMP and still cherish the brand — a good place to start, he says. He also sees a rare opportunity.

Typically incumbents try to preserve profit rather than tackle disruption; AMP is willing to embark on an extensive change agenda.

The CEO becomes sobering when he talks about collateral damage from the royal commission. “It is very serious and it’s something that in the heat of the royal commission probably wasn’t talked about enough. One of the unintended consequences of something like this. I am very worried about financial advice, especially face-to-face advice, becoming more expensive and out of the reach of the average Australian.”

While the $2.7 trillion super industry is something the country should be rightfully proud of, de Ferrari believes that mandated savings have led people to disengage with finance.

“We feel a bit like the last man standing to solve the problem. I am worried that the larger players are seeing this as too difficult to fix. On the other hand, for us it is mission-critical to find the right way forward.”

De Ferrari has seen first-hand the impact of regulation imposed after the financial crisis, including the Markets in Financial Instruments Directive (MiFID) in Europe and Japan, where many fled financial advice. Some markets now face a reversal of legislation to ensure people get the right advice.

“In Australia we have a unique opportunity — again with this partnership with the regulators to make sure that we take some of this learning.”

At the workplace level, it is hard to understate the task.

AMP dodged a bullet when Kenneth Hayne stopped short of banning vertical integration, but the company’s huge network of aligned financial planners, as well as its own, face tough new standards of professionalism.

Trailing commissions are to be phased out and the government wants a single default fund for new superannuants phased in. De Ferrari is quick to stress the central role AMP’s aligned network has played in building the business, but now it faces disruption. How then does he change culture on the ground?

“The good financial advisers are already there today. My experience, again going back to Italy, is that when you shift this model to be more focused around the customer and around managing conflicts properly through the business model, around 30 per cent of the advisers did not make it through the other end.

“So I’m also very realistic about that, but the ones who did and who ran a truly value-adding and ethical model made it out the other end a lot stronger — we have to stay very close to them.”

De Ferrari knows only too well that investors want to see an end to the haemorrhaging in fund outflows, much of it to industry super funds. While half these outflows are for pension payments, as AMP’s legacy demographic is far older than most industry funds, the numbers speak for themselves: $1.8 billion in net cash outflows in the last quarter alone.

“Obviously the royal commission has accelerated these. We need to fix the products and services where we are not delivering value, and the way we rebuild trust is one client interaction at a time.”

So why shouldn’t the average Australian head straight for industry super?

A good question, he admits, knowing the task ahead for retail funds. But he argues that as industry funds grow ever larger, retail players will play a vital role in keeping the market competitive. “There is a place in superannuation for retail players, because if you look at how complex the financial industry is — there’s a lot of disruption, and there’s a lot of innovation that’s coming — to go after this innovation, we are investing and using shareholder capital with shareholders who are conscious that they are in a risk/return trade-off. The other players that are not-for-profit need to use the retirement money of members to fund that innovation, which might succeed or might not succeed.”

Today and tomorrow, the job is customer remediation, a task which weighs heavy on the advice network and any mindset to acquire new customers. But de Ferrari’s track record on growth is another quality that appealed to Murray. Quite clearly, the new CEO has plans for both AMP Capital and AMP Bank.

If they pull it off, de Ferrari and Murray will be heroes.

Ticky Fullerton is Sky News Business Editor and host of Business Weekend, on Sundays
at 11am.