AMP puts $11.9b NZ wealth business on the market

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Both local and offshore players have already made passes at the now officially on-sale again AMP NZ wealth business, according to Blair Vernon, the New Zealand-based chief executive.

“A number of parties has shown an interest in buying the NZ wealth management business,” Vernon said last week. “We thought it would be sensible to have a formal process around that.”

He said talks were now underway with the preference to offload the whole rump NZ wealth business rather than to sell it for parts. “It’s not our intention to sell separate businesses – the wealth management and adviser businesses are relatively integrated,” Vernon said. The NZ wealth unit has been scrubbed up for trade sale after AMP abandoned earlier plans to IPO the business this year.

For example, Vernon said, the NZ life and wealth divisions were legally separated as at June 30 while other operational connections with its Australian parent – including IT and back-office operations – have been severed.

The NZ wealth business – previously tagged as ‘manage for value’ – clearly remains of little interest to the new AMP management regime, headed by Francesco De Ferrari.

(Excluding, of course, the NZ AMP Capital business that will remain part of the broader ASX-listed group.)

In its half-year results released last week, AMP says it will “further localise New Zealand wealth management” while “exploring options to divest”.

NZ wealth, at least, does not feature in AMP’s three-to-five-year outlook, which maps out a radical revamp for the deeply-troubled Australian financial services firm.

According to AMP strategy documents, as at June 30 this year, the NZ wealth division represented 2 per cent of its overall “tangible capital” and 6 per cent of operating earnings. AMP has the NZ wealth arm on its books at A$70 million in goodwill.

“… operating earnings of New Zealand wealth management are expected to be A$40m per annum,” the AMP document says. During the six months to June 30, the NZ wealth arm reported net profit after tax of A$22 million – down from A$28 million for the same period last year – split between A$13 million wealth management (KiwiSaver, superannuation and other retail funds) and A$9 million from advice.

In total, the AMP NZ wealth business manages some A$11.9 billion, comprising about A$5.4 billion in KiwiSaver and A$6.6 billion in ‘other’: the employer superannuation NZ Retirement Trust (NZRT) represents about half of the latter category with the remainder in retail funds, including products on the AMP wrap.

However, all the AMP NZ product sectors are under pressure:

  • the KiwiSaver scheme, while still growing funds under management, has notably slipped in both member numbers and market share over the last few years;
  • the NZRT remains vulnerable to competitors – in particular with the biggest single underlying client, Air NZ, currently reviewing the arrangement;
  • and, during the six months to June 30 the group saw a net A$250 million in outflows from other investment products (such as wrap-held funds) compared to outflows of just A$15 million over the first half of 2918,

As at June 30, AMP NZ counted 345 financial advisers under its banner (down from 405 just 12 months previously) but that number will shrink considerably as the business transitions to Financial Services Legislation Amendment Act (FSLAA) next year, Vernon said.

He said after AMP decommissions its qualifying financial entity (QFE) later this year, just 60 advisers were expected to remain directly tied to the group under a new Financial Advice Provider (FAP) licence: about 25 classed as employees and 35 in the AMP majority-owned AdviceFirst group.

Vernon said AMP was in the throes of negotiating new contracts with the 2,300 or so (mostly life insurance) advisers who previously worked under the QFE or via agency agreements.

The NZ reformation, however, pales in comparison to De Ferrari’s radical overhaul of the Australian wealth and advice businesses unveiled last week.

Under the plan, AMP says it would have “fewer, more productive, professional advisers”. According to media reports that could see more than half of the Australian group’s almost 2,400 advisers dispatched by the end of next year.

AMP has set aside about A$550 million to “reshape” the Australian advice network in a process that will play hardball with the group’s infamous buyer-of-last-resort (BOLR) arrangements.

The group’s back-end loaded BOLRs – that incentivised advisers to put clients into AMP house products – were heavily criticised in the Australian Royal Commission (RC) into financial services last year.

In the strategy document, AMP says it will “reset client register buy-back valuations to market-based multiples”.

Most AMP ‘grandfathered commissions’ – another RC bugbear – will phase out during the first quarter of next year. Grandfathered commissions, due to be banned under Australian legislation tabled this month, represented about 70 per cent of AMP advice income, the RC heard last year.

As at June 30, the AMP Australian Wealth Management goodwill was written down to zero from about A$1.5 billion six months previously.

In addition to slashing the adviser network, AMP has an ambitious plan to simplify the business by the end of next year including: reducing trustees from two to a single entity; condensing six super funds into one; moving to two administration platforms from the current nine; boiling down 72 product lines into five; and, cutting the number of investment options from 170 now to 50.

The group also expects to finalise the sale of its life insurance business to Resolution Life by the end of the year, under slightly less favourable terms after the Reserve Bank of NZ torpedoed the original deal in June.

On Friday last week AMP raised A$650 million in a fully-underwritten rights issue at A$1.60 per share – above the “floor” price of A$1.50

“We pleased with the strong support we have received from investors,” De Ferrari said in a release. “The funds raised will allows us to immediately implement our transformational strategy to create simpler, higher growth and higher return AMP that’s focused on customers.”

AMP share price was up about 11.5 per cent to A$1.93 at the close of trade on Friday.

– David Chaplin, Investment News NZ

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