There is a reason why “being owned” is never a good feeling, which is why it was so interesting to see a change over who “owns’’ customers within AMP.
In the bad old days of AMP (ASX: AMP) – which actually are not that far back – it was AMP that “owned” its customers rather than the linked financial planning practices that actually saw the clients.
That worked a bit each way, with AMP also standing in the breech as the buyer of last resort when planners wanted to exit for whatever reason.
That formula came under enormous strain after the bad old days of high fees and low or no service were exposed so glaringly in the Hayne Royal Commission.
Mass sacking the start of big changes
Clearly, things needed to change within AMP – something that linked planners discovered with a shock when AMP brutally sacked 190 of them.
Most of these planners had bought the businesses from AMP on the understanding that if they were ever forced to sell, AMP would be there as the buyer of last resort at the same terms that they had bought in.
That system was shattered as the last vestiges of vertical integration that had once seen AMP be Australia’s largest insurance and fund management company disappeared.
The amazing shrinking AMP
When floated in 1998, AMP was valued at a lofty $25 billion but now it is just a fraction of that at $3.38 billion and is still rapidly downsizing.
Last week AMP laid out a road map for changing its financial advice business that will allow planners to use AMP’s financial services licence or buy AMP products while still retaining their own branding.
That effectively removes the “ownership” of clients from the institution so that a financial planner who decides to leave the AMP network can take the clients with them for no fee.
The gamble will be that AMP will hope that no planners will want to leave, given that it is revamping its service and fee model so that they are industry competitive, with a set of core services and user pay services.
AMP aiming to be competitive
AMP managing director of advice Matt Lawler said AMP would be investing in technology, expanding products and improving services for advisers in the coming years to move the whole business towards a true advice business and away from a focus on product distribution and sales.
This comes on top of extraordinary times for the financial advice business in Australia with university qualifications now mandatory and tough exams used to test knowledge of corporate laws and professional ethics.
Clearly the bad old days in which AMP was charging dead customers for advice and selling unnecessary products are now over.
Who wants to be ‘owned’?
The real question is, though, will customers like being “owned” by an adviser any more than they liked being “owned’ by AMP?
At a time when many investors from those with self-managed superannuation funds to those dabbling with exchange traded funds are proud to be independent and keen to make their own financial decisions, surely financial planners will need to offer exceptional service to earn the right to “own” their clients?
The AMP changes also come at a fascinating time when the entire financial planning industry is going through monumental changes.
Will planners be limited to the rich?
With robo-advice and self-directed investors threatening to “own” the bottom end of the market, will financial planners be relegated to looking after wealthy clients with complex needs and not enough time to manage things themselves?
In the wake of the Royal Commission, many advisers think Australians have been left with less financial guidance due to the imposition of a massive compliance burden, which has seen many advisers leave the industry.
The Association of Financial Advisers told a parliamentary hearing that the regulatory impost from the Royal Commission has “broken” the system.
The AFA said its more than 3,600 members, mainly in small business, had suffered the most and that consumers are struggling too with having to sign so many pieces of paper.
“It has become excessively complex, over-regulated and is becoming out of reach for many Australians,” AFA president Michael Nowak told a Standing Economics Committee review.
“Further, many of the remaining small business financial advisers have lost the passion and the commitment to continue, with many suffering from mental health issues.
Advisers heading for the exits
“The bottom-line impact of this is that financial advice numbers have fallen from nearly 29,000 at the time of the Royal Commission to just over 19,000 now – financial advisers have left the profession in droves … their clients are losing their financial adviser.”
Over the past two years alone, high costs had caused an exodus of planners, with ASIC figures showing that 6,500 financial advisers had left the industry but only 163 had joined.
Rising ASIC fees to fund the compensation scheme of last resort were also a problem, with advisers paying despite them only being involved in a fraction of complaints.
Committee chair Tim Wilson suggested the flow-on of costs to consumers meant financial advice was becoming only affordable to high earners, entrenching fiscal inequality.