The shrinking of AMP hits home

The rivers of gold have dried up for the banks and big financial planning groups.

It is getting harder to find good financial advice. More than 2600 financial planners walked away from the industry in the last financial year with only 16,000 remaining, down from 28,000 planners a few years ago. The crisis is captured perfectly by the current state of affairs at AMP.

Once a powerhouse in financial advice, the problems at AMP explain the situation in a nutshell.

For all its failings, AMP was once the “factory” for up-and-coming financial planners.

It focused on nurturing and developing new planners and putting them through a rigorous education program to ensure its workforce was equipped with a high level of technical expertise.

While the broader financial planning community has been reduced, at AMP it is dramatic, with planner numbers down nearly 60 per cent in three years from 2474 to less than 1000.

Back in 2010, when I went out on my own as a young financial planner, I joined an AXA-licenced firm where everyone chipped in to pay for operating overheads such as rent, administration staff and supplies. The following year, my division of AXA merged with AMP and I found myself working for the iconic Australian brand.

Although AMP had some great superannuation and investment solutions that suited many people, they were not the best outcome for everyone. But to recommend anything other than AMP products required a lengthy uncommercial process and, if I am cynical, it was almost intentionally designed to dissuade in-house and aligned financial planners from attempting to suggest non-AMP products.

For me, the tipping point was during a 2015 compliance audit where the auditor sat opposite me with a sheet of paper and although my client files were satisfactory, the focus of the meeting appeared to be on how I could improve my AMP “share of wallet” which sat at a rate below 50 per cent.

In other words, as a result of my financial advice less than 50 per cent of recommendations resulted in an AMP product. I recall being asked “what can we do to help you recommend more AMP?”

For me that was enough and within a month I had left and applied for my own Australian Financial Services Licence. 

Following this period we had the financial services royal commission and a whirlwind of legislative changes to advisory standards. Being a former AXA/AMP financial planner, I have always wondered if things had changed at AMP, and more recently why we have seen a severe drop in AMP planner numbers.

The AMP HQ building in Sydney. Picture: Hollie Adams/The Australian

I spoke with Matt Lawler, managing director of advice at AMP, to find out the answers. On the topic of pushing in-house products, Lawler says: “We now have an open architecture for our approved product list across superannuation products, investments, insurance and lending. Our approved product list is as wide as any other financial planning licensee in the market.

“We have been working on the evolution where today an adviser can sit in front of the client and is unencumbered to do anything other than provide clients with advice in their best interest.”

And for those who are unaware of the jargon, the “approved product list” defines the parameters in which an adviser can operate and provide recommendations. For example, can they recommend industry super funds? 

With regard to declining adviser numbers, industry factors have affected AMP such as the elevation of education standards where many financial planners need to go back to university, the introduction of a mandatory standard and ethics exam, increasing compliance costs, increasing licence costs, removal of grandfathered commissions and more regulation around fee consent.

But there have also been AMP specific issues that have led to its adviser workforce dropping by 60 per cent. Lawler says: “AMP’s goal is to work with high quality financial advice practices who are committed to the profession longer term. These practices have the right scale and have developed proper corporate structures.”

“In the past we had many smaller financial advice practices who were operated by sole traders, and (it’s) not to say they were bad, but they were affected by the economics of the industry and the standards set by AMP and many chose to retire, selling their business to another practice within the AMP network as part of a succession plan,” he adds.

The result at AMP is less financial planners but bigger practices from those who remain.

But freedom comes at a price. The rivers of gold have dried up for the banks and big financial planning groups. Individual planners are not making the same level of profits for the parent company via in-house recommendations as in the past. As such, the big planning groups have been forced to raise their licensing prices to financial planners in order to stay afloat.

The end result for the smaller suburban financial planner has been a substantial increase in fixed overheads to the point where it has become uneconomical for many to continue. For others, this cost pressure has been the straw that broke the camel‘s back.

In a nutshell, this is why the cost of financial advice has become unaffordable for many, particularly the younger generation who need it the most.

Hopefully, Treasury’s Quality of Advice report due in December gets to fix this problem.

I look forward to seeing much of the red tape removed so that financial planners can get on with their jobs and focus on providing quality financial advice to people who require it.