By Michael Pascoe
There’s something a little sad about AMP’s $4 billion bid for AXA’s Australian operation – a bit like a CD and vinyl record shop buying another on the basis of greater scale being a really good and promising back office savings, but you somehow know the main game is moving on.
After all the effort of being a sideshow for the main game of AXA’s parent getting its hands on the Asian operations, after all the execution risk and mass sackings and endangering already damaged morale, after having to pay all those scores of millions to sundry investment bankers, lawyers and pizza delivery boys, AMP is still just buying more of the same when the same is under attack.
AMP is yet to confront the fundamental weakness of what was supposed to be its fundamental strength - an “aligned” sales force mainly operating on commission, selling expensive products without necessarily putting their clients’ benefit first.
The big boast of AMP acquiring AXA is that the number of AMP “financial planners” would more than double to 4120. The only problem is that the regulators and the marketplace have been slowly waking up to the limits of that sales force.
AMP’s CEO, Craig Dunn, was running the show’s financial services division four years ago when ASIC started shadow-shopping AMP advisers and found the obvious: about a third of them were churning clients into AMP products without regard for the best interests of the clients; some 45 per cent of randomly-chosen AMP files didn’t disclose a reasonable basis for advice and did not make proper disclosures about the cost of switching.
It’s history that ASIC whipped AMP with a feather over that appalling scandal – and that AMP’s “aligned” financial planners continue to overwhelmingly sell AMP products. That, after all, is why they are there. And it’s much the same story with other “aligned” advisers.
I’m happy to state that there are some very good AMP-linked financial planners and insurance salespeople who do great jobs and do put the interests of their clients first – I know some of them – but that’s still not the way the AMP business is structured.
If an industry superannuation fund is the best option for an individual’s particular situation, is an AMP sales person authorised to recommend it? I rather doubt it.
Unlike NAB’s MLC, for example, AMP is being dragged to the baseline of financial planning’s future – no commissions – and seems culturally challenged to move beyond that to where planning must head: professionalism, putting the client’s very best interests first, ahead of the firm’s.
With ASIC reading the political wind and admitting that its old mantra of “disclosure is all you need” doesn’t work, you could begin to wonder if there’s any future in the current tied sales force model for funds management.
But that’s what AMP is investing in.
"The proposed transaction would strengthen AMP's competitive capability in a consolidating market and create the fifth pillar in a new financial services landscape," Mr Dunn has said.
"The Australian wealth management market remains highly attractive. Aging demographics and bipartisan support for mandatory superannuation would see AMP shareholders and AXA AP minority shareholders participate in the earnings of a highly efficient company operating in a high-growth market projected to more than double over the next decade."
Yes, and the number of people listening to music continues to grow too – but I wonder if AMP has heard of the iPod.